A second mortgage may be something to consider if you’ve built equity in your property and need access to a loan. Consider using this equity for refinancing, renovations, or debt consolidation.
What is a Second Mortgage?
A secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing another property with a new mortgage. It’s very different from a traditional mortgage because you are using your existing home equity to qualify. It’s important to note that it still comes with its own interest rate, monthly payments, terms, closing costs, etc.
Second Mortgage or Refinance?
Both refinancing and second mortgages take advantage of existing home equity – So what is the difference? Refinancing is typically done when you’re at the end of your current mortgage term to avoid any penalties. The purpose is to take advantage of a lower interest rate, change your mortgage terms, or borrow against your home equity. Second mortgages are taken when you borrow a lump sum of money against the equity in your home and use it for whatever you see fit.
What Are the Advantages?
There are several advantages when it comes to taking out a second mortgage, including:
- Have access to a large loan sum (in some cases up to 90% of your home equity, which is more than you can typically borrow on other traditional loans)
- Better interest rate than a credit card
- Use the money however you see fit, without any caveats
What Are the Disadvantages?
As always, when it comes to taking out an additional loan, there are a couple things to consider:
- Interest rates tend to be higher
- Additional financial pressure from carrying a second loan and another set of monthly bills
Before looking into any additional loans, be sure to reach out and speak with us. It’s always a good idea to review your current financial situation and determine if this is the best solution before proceeding.