Second (2nd) Mortgage
Second (2nd) Mortgage Options at CVE Mortgage Group
When you need money, sometimes a second mortgage is the answer. Whether the reason is an emergency situation, or if you are consolidating credit card debt, a second mortgage can be beneficial. Simply put, a second mortgage refers to a secured loan that is behind a first mortgage against the same property, which is typically smaller than the first mortgage on the property.
There are two types of second mortgages: home equity line of credit and fixed-rate mortgages. The rate in question is the interest rate that accrues on funds that you, as the borrower, use. With a home equity line of credit, which is considered an adjustable rate mortgage, the interest rate remains the same for a specific amount of time and then the rate changes based on a specific index. The fixed rate mortgage is just what it says – the interest rate is fixed on this mortgage throughout the life of the loan.
Because these mortgages are primarily based on equity in the home, credit and income are normally not a factor. Most second mortgages carry interest-only payments. The repayment terms on second mortgages can be amortized anywhere from 20 years to interest only payments, depending on the lender that one chooses.
If you don’t have ideal credit or don’t have 20% equity in your home, it is more difficult, but still possible to get a second mortgage on your home; you’ll likely have to look to a lender for a private mortgage.
Advantages and Disadvantages of Second Mortgages
There are several advantages to obtaining a second mortgage. The first advantage is that there are a variety of ways you can use them. You can use the funds to consolidate higher interest debt, pay unexpected expenses, repay and eliminate court judgements, liens or unsettled collections.
While there are advantages to obtaining a second mortgage, including any of the reasons listed above, there are also a few disadvantages that you should be aware of, and discuss with your mortgage broker.
It is important that all individuals seeking a second mortgage understand that the first mortgage on their home is in the position to be paid off first. If take out a second mortgage, you will have two mortgage payments each month, and that is something that you’ll have to keep in mind and consider as you complete the application process. Yet another drawback is that second mortgages have higher rates than other mortgages; it costs more, but interest rates may be lower than those on credit cards and unsecured personal loans. Finally, the associated costs may include second mortgage fees that can be quite large, in addition to the other closing costs.
Steps to Qualify
During the qualification process, lenders look at how much equity you’ve accumulated in your home; they also look at your income and the length of time you’ve been working with one employer as well – this is a measure of stability and your potential to pay the interest. The biggest factor though in qualification is going to be equity in your home (the appraised value less existing mortgages on the property). In most cases, poor credit and even lack of income can be overlooked and you can still get approved for a second mortgage.
Like a first mortgage, a second does have closing costs that some estimate can run up to five percent of the value of the second mortgage. Fees and costs associated with closing on a second mortgage, no matter why a borrower might use it, include a home appraisal fee, legal fees and title-related costs (like the title search and required title insurance.)
If you’re interested in getting a second mortgage on your home, contact our trained mortgage agents at CVE Mortgage Group, Inc. to see how we can help. Call 519-496-0091 to speak with Kyle Debus, Mortgage Broker today.