For homeowners who want financing in addition to an existing loan, rates for second mortgages are high on the list of things to consider. A second mortgage allows you to borrow money against the equity you’ve built in your home.
Here is some more important information homeowners should know about this type of financing:
What is a second mortgage?
A second mortgage is a lien placed on an asset that already has an existing mortgage. For your house, the second mortgage will function like a home equity loan or home equity line of credit (HELOC).
Just like with your regular mortgage, your loan officer may take possession of your home if you default on the loan.
Second mortgages are often cheaper than cards because of their low rates. You can use your second mortgage money for virtually anything, which makes them a popular choice for handling debt consolidation, home improvements and medical expenses.
How to get a second mortgage
The first step in obtaining a second mortgage is to determine your home’s equity. It’s ideal to have at least 20% equity, so the remaining loan amount doesn’t go over 80% of the home’s total value.
It’s also a good idea to check on your credit report before applying. This gives you a chance to dispute any mistakes or resolve any issues that could affect your ability to qualify for a home equity loan or credit line.
When to apply for financing
There is no hard and fast rule for the best time to get a second mortgage. It’s important to consider every possible factor, including the current interest rate and your financial situation.
Usually, borrowers follow market trends when acquiring the second loan. Mortgage rates can vary, but tracking the trends of the market will allow you to apply and receive a second mortgage when rates are low. You also want to be aware of the various fees charged by mortgage lenders and how they factor in to the total annual percentage rate (APR).
Home equity loans through second mortgages are a great way to capitalize on your home’s equity. They can help you cover expenses unrelated to your home, either through a lump sum loan or HELOC. To find out if a second mortgage will work for you, consult a financial advisor and check with your lender for details.
About the Author
Ryan Christensen
Responsive, Responsible and Resourceful - How Real Estate Should Be. This is the foundation of our continued success: responsive service, providing accurate and timely information, and demystifying the process. 100% of my business is referral based because I listen to my clients' needs and exceed their expectations. As a full-time real estate broker, I am the best advocate for both my buyers and sellers. I am always available, regardless of the time of day.
Being a native Southern Californian is a tremendous advantage. I know the area. Time is more valuable than money, but neither can be wasted. And, I'm a fan of hard work. My clients can enjoy their home buying and/or selling experience because I provide a trusting, focused, straightforward approach. I look forward to helping you achieve your goals and find joy in homeownership.
I am both a licensed Real Estate and Mortgage Broker. Others choose to concentrate on one or the other. I provide a higher level of service and expertise than those who do not obtain this dual skill set, which differentiates me from other service providers. My decisions and advice are based solely on what is in the best interest of my clients. I use Real Estate Sales as a tool to make sure my clients get the home that meets or exceeds their needs. As a Mortgage Broker, I search for the best loans so I can offer lower rates and pricing than my financing competition. This certainly IS in the client's best interest.