One of the most underrated benefits of investing in your own home is the possibility of using it as collateral for a second mortgage at a time of great financial need. In this article, we’ll discuss how you can mortgage your home for the second time and why doing so might be a good idea.
What Is a Second Mortgage?
A second mortgage is a loan or lien on your property that uses your home as collateral to obtain extra funds. It is the second loan or mortgage on a property already mortgaged, next in priority of repayment to the loan originally used to purchase your home.
Unlike other types of loans, such as car loans or student loans, the money you can get from a second home loan can be used for anything. More often than not, secondary mortgages also offer interest rates much lower than the rates for credit cards or personal loans.
The amount of money you can get on a second home mortgage will depend on the equity of your home, computed at its current market value less any loan balances. This equity balance may increase or decrease over time as values rise or fall, but as long as it remains positive, you should be able to get a second loan on your property.
Top Reasons to Consider Getting a Second Mortgage
If you first took a mortgage some 20 years ago, you have probably built up substantial equity in your home. To release part or all of this equity may be a good idea, especially if you plan on using the money in any of the following ways:
Undertaking Home Improvements
Extending your home or installing glazed windows serves to increase the overall value of your home. If you’re planning to sell your property in the future, it may be a good idea to take out a second loan for such home improvement plans. After all, you are bound to pay off the mortgage from the profits of the sale, with a little extra revenue for you.
Paying off College Loans or More Expensive Card Debts
As mentioned earlier, you are likely to get lower interests on a secondary mortgage, so it may be a good idea to use that money to pay off other higher-interest loans.
Paying for a ‘Once in a Lifetime’ Holiday
If the money you need for the holiday of your dreams is just sitting there as equity in your home, why not take some of it to make your dream holiday happen?
Basic Requirements to Secure a Second Mortgage
To see if an applicant qualifies for this kind of mortgage, lenders will look at four main areas:
The Amount of Equity You Have in Your Home
Obviously, the greater you have, the higher your chances of qualifying for a second mortgage. Lenders will look at the ratio of debt to value and calculate how much they can advance. You can use a mortgage calculator to work out the likely repayments at different interest rates and different loan periods so that you know what your commitments will be.
Reliable Income Source
One of the most important aspects is that lenders will need to verify that you have a reliable source of income to ensure that you can make the necessary repayments.
Your Credit Score
If you have a high credit score, you’re likely to get lower interest rates for your second home loan. Conversely, a poor credit rating will mean higher interest rates and a possibly lower mortgage amount.
Marketability of Your Property
The nature of the property itself is also important as lenders will want to assess its saleability in case something goes wrong, and you are unable to keep up with your repayments.
Let’s Get You That Second Mortgage
Axiom Mortgage Solutions has a long-standing experience in advising clients about second (and first) mortgages, so why not get in touch with us today to see how we can best help?