Managing your finances is a very tricky business. At times you might be required to take out a second mortgage and the reason for the same could be anything. You may decide to pay off an old debt or consolidate all your various small debts and do a lot more with this money.
A second mortgage is a lien that can be taken out against your property that already has a loan on it. A lien is fundamentally a right that you allow a lender under specific circumstances. This enables him to seize your property and possess it if you are not able to pay off the loan.
This means that if you default on your loan, the lender is going to take control of your home. In the case of a second mortgage, a lien will be taken out against the section/portion of your property/home that you have already paid off.
2 Most Commonly Sought-After Second Mortgage Types You Should Be Aware Of
If you are contemplating taking out a second mortgage, you should think about the various options you have. You could either go with a home equity loan, a home equity line of credit or a piggyback loan. The former two are the most popular.
Going For A Home Equity Loan
This is going to be a one-time lump sum amount. A home equity loan is financing that you receive upon securing the loan with the equity in your home. You will be repaying the loan at a fixed interest rate.
This means that your payment will remain the same every month. Also, the interest rate that you get with this kind of loan is going to vary based on your credit. It is also possible to get a home equity loan if you do not have any credit or if you have bad credit.
A typical repayment term is going to last between 5 and 30 years. The Portland Mortgage Lender will be in a position to foreclose on your home if you are not able to repay the loan as agreed.
What Is Home Equity?
The equity in your home/home equity is the value that you get after taking away your outstanding mortgage and loan amount from what your home is currently valued at.
You must pay your mortgage and any loans on it to add more value to your home equity. It is an important asset for you as a homeowner because you can use it to borrow equity loans and lines of credit.
A Little About A Home Equity Line Of Credit
A home equity line of credit is quite similar to a credit card but it is secured with your home equity. You can easily borrow money and repay it and also use the credit line to borrow again. With a home equity line of credit, you can borrow as much as you want and as little as you need.
The draw period of a HELOC is typically up to 10 years. During this period, you may be required to pay only the interest on the funds you have used.
This kind of loan lets you access the equity in your home. However, you will be charged interest only on the amount that you have borrowed. This added flexibility makes it a great option for people who do not know for sure how much of their home equity they should borrow.
But Wait A Minute. What Are The Advantages Of Taking Out A Second Mortgage After All?
A second mortgage is like any other loan that you seek. There will be both advantages and disadvantages to it. But let us focus more on a few pros of it.
1. Higher Amount Of Loan
Several lenders in the market may allow you to take as much as up to 90% of your home’s equity in a second mortgage. This means that if you plan to take out a second mortgage, you will be able to borrow more money as compared to any other loan. This is going to help you out in the long run if you have been paying payments on any of your existing long-term loans.
2. Lower Interest Rate As Compared To Credit Cards
Another very big advantage of a second mortgage is that they are considered a secured debt. This means that there is collateral behind them. You should be able to get a lower rate of interest on your second mortgage because there is a lesser amount of risk attached to this kind of loan.
3. No Limits On Fund Usage
You will not have to worry about any rules or laws that dictate how you can use these funds. You can use the money from your second mortgage in any way you want to. The following section explains it a little better.
Should I Be Worried About Second Mortgage Interest Rates?
You don’t have to worry about second mortgage rates because they are more likely to be on the lower side. This is because these are not unsecured debts like your personal loans or credit cards.
However, the rates on your second mortgage might be a little higher than your first mortgage simply because it is going to be second on your priority list should you fall into foreclosure.
Now Let Us Understand A Few Very Common Uses Of A Second Mortgage
· You can spend this money on necessary home improvement tasks
· Some individuals also prefer to use this money on essential medical expenses
· A second mortgage also helps you meet the college education expenses for your children
· If you are thinking about consolidating all your higher-interest debts, a second mortgage should help you do that
Final Thoughts
You can also use your second mortgage to buy some kind of investment property. This can be a little risky though because any kind of downturn in the housing market is going to devalue both your properties. At the end of the day, this decision is largely going to depend upon the purpose that you want to solve by taking out a second mortgage. This piece of information should help you plan your finances wisely and manage your money without any stress.