Should you take out a second mortgage? If you’re torn about whether you should get one, you need to know how it works, its benefits and other considerations you have to make.
A second mortgage is a good option if you can’t extend or refinance your first mortgage. Essentially, it’s a second loan that is added to your first mortgage. It uses your property’s equity, and once established, you will have two mortgages against your property.
Back in the day, second mortgages were like first mortgages. The rise of non-bank and private lenders paved the way for more options for borrowers, offering short-term second mortgages that have a term from 2-36 months. These short-term second mortgages are becoming a popular alternative for persons and businesses.
How Does It Work?
As mentioned, a second mortgage is similar to a first mortgage. Mortgage lenders will need to consider the total Loan-to-Value (LVR) of both the primary and secondary mortgages to decide whether to approve you or not.
A second mortgage will tap into the current property equity. This will increase over time, and the equity can be released through a second mortgage loan.
If you’re interested in getting a second mortgage, you can apply online. Once approved, the loan will take the form of a lump sum or a line of credit.
Should You Get a Second Mortgage?
If you’re one of the many people who hasn’t decided yet if a second mortgage is right for them or not, there are various reasons it’s an excellent idea, such as:
- Renovations: If you plan to sell your property, you can get a short-term second mortgage to fund improvements to your home that can be released upon the sale of the home.
- Bridging the gap: A second mortgage is usually used to bridge the gap between the purchase of one property and the sale of another.
- Investment property: A second mortgage can help fund the deposit or purchase of another property.
- Debt consolidation: You can use a second mortgage to pay off personal loans and credit card debts.
- Business: Some business owners take out a second mortgage instead of a standard business loan due to the interest rate. A second mortgage can boost business cash flow or working capital.
What Are the Benefits of Second Mortgage Loans?
A second mortgage can help you access large loan amounts because the loan will be secured by the property. However, the amount you can borrow will depend on the amount of equity you have in your property.
Another thing is that a second mortgage will provide you with a lower rate of interest compared to alternatives. Moreover, it has a higher LVR that will let you borrow a larger loan amount.
Finally, you get quick access to funds for a variety of uses. This lets you access the equity you have built up in your property quickly for personal use.
Now that you know more about a second mortgage, do you think it’s the right one for you? If it does, make sure you find a reliable mortgage lender!
Here at Wealthy You, we have versatile mortgage brokers in Sydney, NSW. We offer mortgage financing rates that beat the banks and help you with your financial needs. Contact us today!