What the Heck is a Second Mortgage?
First off, are you aware that you can take a second loan on your home? A first mortgage usually starts with buying the property. The second loan against the same property, while your first mortgage is still not fully paid, is known as the second mortgage.
Having a good understanding of how do second mortgages work can prove to be very useful when you need quick funds for an emergency, to pay off high interest consumer debt, an investment, a child’s tuition, or even home renovations.
Coles Notes of Second Mortgages
The first mortgage must be completely repaid from the sale proceeds before the 2nd mortgage lender or investor will be able to recover the loan or investment.
A mortgage is always taken out against the equity in your home, and second mortgages are no exception. These are loans using the equity in your property. The loan amount that the second mortgage lender will offer you will depend on the equity built up in your property.
Interest rates on a second mortgage are higher than those charged on the first one. This is because the second mortgage lender is taking a higher risk, as he gets second priority in case of default. There are even third and fourth mortgages but as you can imagine, the rates and fees just keep climbing with the risk to the lender or investor.
At Home Equity Solutions, we strive you provide many options to choose from. This allows you to cater your private mortgage to your needs.
For example; what do you prefer? The lowest monthly payment? The lowest principle balance at completion? The open to cancel the mortgage at no cost at any time?
Can a Line of Credit (LOC or HELOC) be a second mortgage?
Yes but this is not typically considered private lending. Private lending (what we offer) provide lending solutions for clients who will not be approved through a bank. We often tell people to go to their bank first if we feel that they could be approved at the best rates available. You will only get these from banks.
There are two primary types of second mortgage loans: a home equity line of credit (LOC) or a home equity loan.
A line of credit (LOC) when secured offers excellent rates, unsecured is often the same price as private lending.
Second mortgages allow you to access up to 80% of the equity you have in your property, sometimes more but we don’t recommend it considering the extremely high rates. Consider that you own a property valued at $1,000,000, and your first mortgage is for $500,000. In this case, you’d be able to access $250,000 to $300,000 upon obtaining a second mortgage if approved. Smaller cities with lower populations bring greater lending restrictions.
How to choose the correct second mortgage
This is easy, leave it to the pro’s, us! We use a detailed process to ask all the right questions to provide at least three different investor bids. These provide great options for your lending needs with a detailed breakdown of each opportunity.
Is a private mortgage right for me?
This simply depends on whether you really need it or not. Then it is just a numbers game and our goal is to run the numbers for you to take away the hard lifting.
Of course, there are concerns to consider. Are you able to make these new payments? If your poor spending habits got you into a mess, will you keep down that path or use the private mortgage as a solution to get out of it?
Questions? Just ask, call today!