Bought a swanky new house with a perfectly affordable mortgage but suddenly find yourself facing credit card debt woes ? Get a second mortgage. Here's everything you need to know about second mortgages.
Second Mortgage, say what ?
Second mortgage is a mortgage taken out on a property that has been previously mortgaged once. It is usually smaller than the first mortgage and comes with a high interest rate on account of the additional risk that a lender undertakes in facilitating this loan. Ergo, the second mortgage always stands second in place in case there is defaulting of payment necessitating in property seizure. This may have the unfortunate consequence of not being repaid in full on the second mortgage lender's part. From a financial perspective, second mortgages are synonymous to home equity loans.
Closing costs for
second mortgages need also be taken into account. They can run approximately from 2% – 5% of your second mortgage. Closing costs include, but are not limited to:
•Appraisal fee
•Legal fees
•Title search
•Title insurance
•Home survey
Here's what you need to secure a second mortgage:
• Minimum 20% of equity on the value of your property.
• The financial ability to pay monthly payments on the second mortgage without exceeding the Total Debt Service (TDS) ratio.
• High credit scores. Those with low credit scores are also considered eligible for second mortgages albeit with a higher rate of interest.
• Stable employment history. Typically, you need to be off the probationary period for 6 months before you apply for a second mortgage.
But why should I bother ?• Second mortgage interest rates are higher than the
first mortgage interest rates but lower than your average credit card and car loan debts and therefore are the best way to consolidate these debts.
• To pay for major house renovations.
• To meet with unexpected expenses.
• To invest in stock mutual funds or business investments.
• For financing a small-scale business.
• To help for college or university education.
How do I go about it ?Since second mortgage is such a high risk venture, few established moneylenders provide this facility. Therefore, in case you've a low credit score, private and local moneylenders seem to be your best bets. Institutionalized banks and loan providers will not undertake to provide you with a second mortgage unless you have spotless employment and repayment history and a great home equity to go with it. So do some background research and enquire into the interest rates of the lenders available before making a decision.
When approaching a lender for second mortgage, you must possess these basic documents: Social Insurance Number (SIN), proof-of-employment letter, first mortgage documents and bank statements along with other documents that your lender may deem necessary.
This accomplished, you're free to access the additional collateral you receive to consolidate your debts or pursue any other financial endeavour.
Image Credit : https://pixabay.com/en/mortgage-hypothecary-credit-loan-149882/