Many people still don’t understand what a second mortgage is. The term itself is admittedly somewhat confusing. A second mortgage is not a mortgage taken on a second property. In fact, it’s another mortgage secured by the same property which already has an existing mortgage. It can be hard to determine if taking a second mortgage is right for you, so here are a few things about it that you should know and which can give you a better idea.
1. Quick Cash
A good method of accessing available equity fast and also not break any terms you have in place for a first mortgage is by taking out a second mortgage. This ensures that any payout penalties associated with the initial mortgage are averted.
2. Kinds Of Second Mortgage
One way to get a second mortgage is to get a HELOC (home equity line of credit). This is basically a separate loan or mortgage on the same property. This loan is somewhat limiting because you can only obtain up to 65% of the value of your home. Apart from this, you are also subject to some qualifying requirements that are somewhat strict. Private lenders are more flexible, since a second mortgage loan can be as high as 95% of your property’s value.
3. Flexibility Of Private Lenders
If you go through an independent mortgage professional, you could have access to a private lender whose guidelines aren’t as strict and are more flexible. Qualifying for a second mortgage can be a lot harder with a lender who holds your first mortgage. A private lender is also more willing to work with you so that a satisfactory solution can be worked out for both parties.
4. Renewal Fees & Penalties With private Lenders
Since a private lender is not a bank, they tend to ask for less qualifying documentation, however, they do charge payout penalties and higher renewal at their discretion. The mortgage commitment documents you sign will contain all this information, so, whoever you go with, make sure to fully comprehend all the fees and terms associated with it when borrowing funds.
5. Second Mortgage Should Be Short-Term
A second mortgage should only be a short-term solution. There are higher interest rates, fees and penalties associated with it, so go in with your eyes wide open. If at all possible, to avoid private lenders, try to find a less expensive solution.
6. Second Mortgage, Third In Line
Once your property is sold, you are third in line to benefit from the equity available. The first mortgage holder receives any balance owing to them, followed by the second mortgage holder. Then of course, there is also the question of all the real estate fees. The remainder from the sale is then yours.
7. Explore Your Options Thoroughly
Make sure to speak to your personal banker and also an independent mortgage professional to fully explore and understand your options and the consequences of your actions. In private financing, it’s good to ‘know people’. If you have access to many private lenders, this may be a good way to optimize your financing needs. If you worked with a mortgage professional who is an expert in private and second mortgage financing, this could also greatly benefit you.
You want to pay off everything as quickly as possible, Working with a mortgage professional will at least give you the proper guidance to do so by having a plan in place. They can also offer other strategies that will be able to help you achieve your goals.
