Whether cash is needed for home renovations, children’s educations, travel or to cover other costs, a second mortgage may make a lot of sense.
What exactly is a second mortgage?
A second mortgage can sometimes be referred to as a home equity loan. It’s the first cousin to a primary mortgage which pays for the home. If a homeowner has built up enough equity in the home, a second mortgage may be just the ticket to get some cash.
How can you qualify?
Lenders typically want to see that you have at least 20 per cent equity built up in your home before considering granting you a second mortgage. In that case, you may be able to borrow up to 80 per cent of your home’s appraised value. The more equity you have, the more cash you may get for a second mortgage.
As with any other type of loan, you will have to produce some other records such as proof of income and employment, how much debt you’re carrying, and your credit score.
Why take out a second mortgage?
Second mortgages provide qualified homeowners with cash fairly quickly after being approved. If you have other outstanding debts, a second mortgage could provide you with the opportunity to consolidate those debts at what could be a much lower interest rate. It’s much simpler to manage one or two debts rather than several.
The most popular reason most homeowners take out second mortgages is to make improvements to their homes. If those old windows need replacing or the wiring and plumbing need upgrading, a second mortgage would help. Maybe you want to renovate the kitchen or add an extra bathroom—you might think about securing a second mortgage to do so.
Most upgrades always add value to a home, so it’s ultimately money well spent. A loan is a loan, however, and must be paid back. So, when you’re making those renos, think of the return on your investment. If you get back more than you invest if you go to resell, you’ve made the right decisions.
If you think a second mortgage might be of benefit to you, you might want to schedule a meeting with a mortgage specialist to make sure a second mortgage is the right type of loan for your situation.