If you are a homeowner and need to access a large sum of money, there may not be many options for you to choose from. Now maybe the perfect time for you should consider getting a second mortgage.
What is a second mortgage, and how does it work? A second mortgage means taking out an additional loan that will be registered as a secondary lien against your property and will fall into second position behind the existing first mortgage loan on it. For those wondering what a lien is, it is when a homeowner gives a lender the right to seize their property should they not pay off their debt in time. However, it provides them with readily available funds without the need to sell their home using the available equity in the property. The amount you would get from a second mortgage depends on your available home equity as it relates to the current home value.
Before we go more in-depth, I’d like to caution you that it is important to make sure that you do the right research prior to taking out a second mortgage to ensure that is indeed the right choice for you to make. With all that being said, we’re going to give you 5 reasons why you should get a second mortgage in 2021.
Maybe you need the money urgently because you want to make a down payment for your vacation house that’s closing very soon. Perhaps you thought about changing your career, and now you need money quickly to go to your dream college or university and need some money quickly to help you carry the costs. You might find yourself behind in bill and debt payment due to a sudden decrease in income or job loss from the COVID-19 pandemic and need money to pay off debts and assist with your cashflow situation. In situations like these, when you require money, a slow loan process can be quite annoying. The loan gets approved in a few weeks and can sometimes take a month or more (months), and by that time, the opportunity has already passed, or you find yourself in an even worse debt and financial situation.
If you are in a similar situation where financial freedom or the opportunity of your life is thousand dollars away, a second mortgage can help you. How? Well, the second mortgage tends to be surprisingly quick and easy to approve. In many cases, it can happen in as quick as a few days instead of weeks or months. Many people benefit from the fast approving nature of this type of loan every day.
One of the best things about a second mortgage is that a bad credit score is not a problem since many private mortgage lenders care primarily on the value, condition, location, and marketability of the property, as they focus mostly on asset-based lending. So, even if you have suffered from bad credit, you can still get a second mortgage loan with almost no issues at all.
You could get a second mortgage much easier and faster than a bank mortgage because the rules for second mortgage lending, and private lending in general, and the qualification criteria are much more lenient. Banks are operated within a specific set of rules, guidelines, and laws that do not apply to private lenders. This is why banks tend to often times disqualify their borrowers and deny their mortgage applications. On the other hand, a second mortgage broker deals with each situation keeping in mind the specifics of each different lender and the unique needs of each specific borrower. Hence, with specialized second mortgage brokers, you have a better chance of getting a second mortgage at the best rate that you can qualify for more so than with any other loan under certain circumstances.
Lower Interest-Rates than Unsecured Loans
One of the benefits of a second mortgage loan is the lower interest rates when compared to man unsecured loans. If you have ever got an unsecured loan from your credit card, a loan broker, or a bank before, you know that the interest rate can be surprisingly high. Many of these unsecured lenders keep their interest rates so high that people sometimes can't make the monthly payments on time and fall behind on these loans. The right second mortgages are not structured like that. The goal of a second mortgage loan is to be able to pay it off at some point or refinance them out when the first mortgage comes up for renewal. This is because many second mortgage lenders do not want the same loan sitting on their books for more than a year or two.
Since these loans are secure because they are issued against your house as collateral, second mortgage tend to have much lower interest rates than some unsecured loans. For instance, you may be able to get a second mortgage from good mortgage brokers with interest rates starting as low as 6.99% a year (as of the date this post was originally written) or less than 0.6% interest per month. The rate that you get depends on a variety of factors, including loan to value, the location of the property, the condition of the property, and more.
As the interest rate is relatively low to many other types of loans, it means you can pay it off with more ease in comparison to many unsecured loans.
Continuous Money Pool
Do you know that you need extra money but do not know the exact amount? If yes, then you might be able to benefit from a home equity line of credit in second position. This is essentially a second mortgage that acts like a HELOC.
See, if you’re not sure how much money you may need exactly and you get a personal loan at a larger amount just to be safe, then you would need to pay all of it off and will be paying interest on the entire amount, even if you do not end up using it all. But with a second mortgage HELOC, this is not a problem.
The second mortgage comes in 1 of 2 forms. First comes the standard second mortgage. You get the entire credit loan of money at once, and then you pay it off in smaller chunks.
But the second type of the second mortgage is the home equity line of credit. Here your mortgage broker would help you get a fixed credit limit, but you can take out as much or as little amount of cash as you’d like provided that your outstanding balance stays within the approved credit limit. You can withdraw the money that you need at the moment, then pay it off. The next time when you need more money, you can access it easily again. The great part about this is that you will only be paying interest on the amount that you have withdrawn at any given time, not on the total line of credit limit. This way, you can pay off the money and then borrow more on an as-needed basis. Hence, you can be saving a lot of money in the long.
Pay Off Your Debt
Often times loans are a necessary evil, but when used wisely, loans can be used as a financial tool to help you get ahead on your finances. A student loan for example, is used to help someone get an education that then may benefit them in their careers. However, in many cases, when a student takes out the loan, they don’t always read all of the terms and conditions related to the repayment of the loan and interest.
The same thing can be said for borrowers taking out a car loan. The interest rates and fees for any potential missed payments can be astronomical at times and can negatively impact the borrowers credit score and creditworthiness down the road. In these instances, a second mortgage can help consolidate these higher interest-bearing debts into one much smaller and more manageable monthly payment.
Yes, in many cases people get a second mortgage to buy a car, pay for their education, consolidate debt, and more. However, many people don’t know that they can use a second mortgage to pay off their existing loans.
Here’s why you might want to consider doing this:
Second mortgages are usually available at a lower interest-rates than credit cards, department store cards, car loans, student loans, business loans, and many other personal loans. Now, what you can do is get a second mortgage at low interest and use it to pay your high-interest loans off. The low interest-rate of a second mortgage makes it much easier for you to afford the monthly payments, and with the extra surplus of cash you can put that to pay off the principal balance of the loan quicker.
If you own a home and have enough equity available, you can use this method to pay off any high-interest loan you want.
2021 is the year of reinventing yourself and getting financially independent. More and more people are taking an interest in freelancing, and despite the tough times, many small businesses that offer an online component are thriving more than ever. Furthermore, it is also considered to be, by many economists, one of the best times to invest in cryptocurrency as the price of Bitcoin has been skyrocketing at the onset of 2021. 2021 can be a great year to invest into various investment vehicles, start a new business, and more.
When starting a new business, many entrepreneurs turn to getting a business loan. However, getting approved for a new loan to start a business can be challenging and even next to impossible for many. With a second mortgage, not only can you put that money towards a new or existing venture, but you can also invest it into higher-yielding investments.
Now that you know some of the reasons why you might want to look into taking out a second mortgage, consulting a mortgage broker to discuss your situation and see what options might be available and suitable for you is a great place to start. There are many ways that you can benefit from the right second mortgage, but there are also many ways that the wrong kind of second mortgage can hurt you financially. This is not a decision you should take lightly.
It’s worth mentioning that you should never take a loan from an unreliable source. Whether it’s a matter of you paying too much interest, unreasonable up-front fees, or identity theft, you want to make sure that you aren’t being taken advantage of. With an issue as important as a second mortgage, where the money is issued against your house as collateral, you need to have the right information in order to make an educated and wise financial decision before signing the terms and conditions of any mortgage commitment document.
This is where we can help you. The knowledgeable and professional team of mortgage brokers at Clover Mortgage are happy to help educate and inform our clients on their options, the terms, and the pros and potential cons of taking out a second mortgage, HELOC, or any mortgage related loan.