As you make each mortgage payment, you are building equity in your home. Your home equity is also built by the increased value of your home over time. Your home value can increase in many ways including doing home improvements and upgrades, or a hot real estate market.
As you build equity in your home, you can access the money available in your property in a few different ways, including:
A second mortgage is simply another type of loan you secure with your property. It is registered in the second position since there is a first mortgage currently registered on the title of your home. This means it has a second priority to the primary mortgage when being paid out when you sell your home or refinance your mortgage.
When you are considering taking out equity from your home, refinancing your first mortgage may come with some challenges, such as:
In these situations, where you may not qualify to refinance your mortgage, the only available option to access your home equity will likely be a 2nd mortgage.
Second mortgages work the same as any mortgage, except without the income and credit requirements you need to qualify for a mortgage at a bank.
Just like any mortgage, second mortgages have a term, an interest rate, monthly payment, a pre-payment penalty, and closing costs.
In most cases, second mortgages don’t have an amortization. What does this mean? It means the monthly payments are interest-only. You can request to have the mortgage amortized, and pay down some of the principal balance.
The term of the loan can vary as well, ranging between 3 months to 12 months (1year). Most second mortgage lenders offer a 12-month term. A 2nd mortgage is not a long term solution, and shouldn’t be relied on for multiple years.
The penalty for breaking a second mortgage during the term is usually three months of interest payments. Most send mortgages don’t allow for lump-sum payments to be made.
The interest rate for a second mortgage varies based on a few key factors.
Since a 2nd mortgage approval is based on equity, and not the borrower(s) income or credit, there is an increased risk to the 2nd mortgage lender. A second mortgage lender is leveraging their lending risk based on the real estate market condition.
While credit and income are not factors for getting approved for a 2nd mortgage, just like any mortgage, your credit will be a factor in determining the interest rate. Having good credit is an indication of lower risk, while a bad credit history can a signal for higher risk for a second mortgage lender to lend to a specific borrower.
The interest rate for a 2nd mortgage can range between 4.99% to 10.99%. The lower the risk the second mortgage lender, the lower the interest rate will be. The higher risk is, the higher the rate will be.
A great way to find out your potential interest rate for a second mortgage is using a second mortgage calculator.
Payments for a second mortgage are usually based on interest only, and most second mortgage lenders will only offer a monthly payment schedule.
To calculate second mortgage payments use our second mortgage calculator to have an understanding of your interest rate and monthly payment.
Of all types of mortgage loans, this is the easiest type of loan to qualify for. The approval is mainly based on the equity available in the home. Homeowners who have a bad credit score or a high amount of debt can get approved since the approval is based on the equity in their home.
Before taking out a 2nd mortgage loan, it’s important to understand the pros and cons of second mortgages. This type of loan comes with many pros and cons, and is suitable for most situations.
All homeowners have different and unique situations. What may be a disadvantage to some, may be an advantage to others.
See the list of advantages and disadvantages of getting a 2nd mortgage.
All homeowners have unique circumstances where they need to tap into their equity to access money.
Lenders don’t put any restrictions on how you can use your money. That said, it’s important to use your second mortgage loan wisely.
Below is a list of some common uses of a 2nd mortgage:
Everyones situation is different and it’s important to do your research on 2nd mortgages before proceeding with the loan. While there is a lot to learn as a homeowner, it’s a good idea to get the knowledge and experience of a licenced mortgage broker.
Our expert mortgage brokers are here to help guide you to financial success. Contact us today to discuss your 2nd mortgage needs and get unbiased mortgage advice.
Best second mortgage interest rates from second mortgage lenders.
Get a fast second mortgage approval and closing in 48 hours.
All credit types and credit scores accepted.
No income verification required for accessing your equity.
All approvals are based on the equity and your property alone.
Getting a second mortgage is quite simple. Second mortgage approvals are based on equity, not credit or income.
We take pride in taking the time and effort to match up every individual homeowner and homebuyer with the best mortgage financing options and rates. With access to more than 200 participating mortgage lenders, there are mortgage solutions for all types of borrowers. We listen and understand your mortgage and real estate goals, and find the best mortgage terms tailored to your specific goals to save you thousands of dollars on your new mortgage.