Posted onAugust 29/2016
Life happens – and there are things that may crop up that may put a serious damper on your financial situation. Owning your home can help mitigate these problems through the use of a second mortgage.
Consolidating debt, for most people, is a reality in this economic climate. Homeowners with at least 20 per cent equity in their homes can apply for a second mortgage, which is a great way of working away at reducing your debt. It’s also an option when you need extra cash for things like medical expenses or renovations.
Do I qualify?
The interest rates on second mortgages are often higher than first mortgages, yet carry lower interest rates than credit cards. If you pay other debts on time and choose to get a second mortgage, you may find your credit score improving, a definite bonus!
Here are a few things lenders will look for in those who apply for second mortgages:
- Income. Are you gainfully employed? Or have a consistent source of income? Lenders will want proof that you’ll be able to make payments
- Equity. The more you have invested in your home, the better. A larger down payment for those buying a home is also a plus. The less risk a lender has to take, the better for you
- Credit score. A higher score equals lower interest rates
- The property. The investment needs to be secured by the lender if you are unable to make mortgage payments
The good and the not so good
On the plus side:
- Your first mortgage doesn’t need to be discharged, so you’ll have no penalties or fees
- Most carry a term of one year with only interest payments
- There are many choices of lending institutions, so financing can be more easily arranged
- If you’ve got a mortgage and a positive credit history, chances are you’ll be an ideal candidate
- You can use up to 80 per cent of your home’s value to arrange for the mortgage.
On the not-so-plus side:
- You’ll face higher interest rates
- Second mortgages may carry longer terms but repayment may be required sooner depending upon the terms of the loan
- There is a possibility of default, in which case the second lender has the option of purchasing the home
If you’re thinking a second mortgage may be an option for you, speak to the experts at Northwood Mortgage about your situation. Schedule an appointment and have all your questions answered.