Are you considering a second mortgage but unsure what to expect? Second mortgages can be an attractive way to access cash, especially if you don't want to go through selling your home or refinancing.
But, like all financial decisions, there are certain things that you should know before applying for a second mortgage. Taking the time to understand this type of loan is key. We'll break down the most important topics here so you have everything you need as make an informed decision about your finances!
Second Mortgages and Home Equity
Second mortgages have become popular for homeowners to unlock their home's capital and cash out 80 to 95% of its current value. They are incredibly helpful in utilizing equity for large purchases like vehicle payments, college tuition, emergency funds, home improvements and more.
Lenders offer many options regarding second mortgages, whether you are considering total loan amounts, interest-only payments, fixed rates or adjustable rates. However, be aware that interest on these loans is usually tax-deductible, and you should always consult your financial advisor before applying.
Second Mortgages and Interest Rates
It's important to weigh the risks and benefits of this high-risk type of loan. Second mortgages carry high-interest rates because they are a higher risk to the lender, which can become even more expensive if you default on your payments.
While offering lower monthly or smaller down payments may be appealing, it's important to understand the loan agreement's fine print to ensure these interest rates are reasonable. Doing thorough research is vital to limit your financial exposure, as high interest can quickly get out of control if not managed properly.
Second Mortgage Payments
Regarding second mortgage payments, interest-only payments can be an attractive option for homeowners. This payment plan can help to reduce monthly outgoings. However, additional interest will be accrued throughout the loan, adding up when the principal is due.
Second Mortgage Additional Fees
Securing a second mortgage can be an excellent way to finance large projects or get access to cash in the short term, but it is important to know that the fees associated with such a loan can be steep. On top of standard closing costs and appraisals, there's usually an upfront percentage of the mortgage amount on top of the interest rate - typically around 1%.
However, some lenders may charge more than that. This percentage will depend on your credit score, assets, debt-to-income ratio, and other factors.
Still, if you know what upfront percentage you'll owe (and are confident you can cover all associated costs), a second mortgage might be a great option for your next financial endeavour.
Bottom Line
In summary, knowing what a second mortgage is and the associated interest rates, payments, and additional fees is key to determining your choice. There are numerous advantages which come from tapping into your home equity.
Nonetheless, loans come with responsibility. Whether for debt consolidation or major purchases, speaking with a trusted lender should be the first step in making such an important decision. Curious if a second mortgage is right for you? Get started today by contacting. We've got you covered.