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What You Should Keep in Mind About a Second Mortgage

A second mortgage is a new loan that you take against your home. The term ‘second’ indicates that in case you default, the home loan taken prior to the new loan is of higher importance than the new one. In a situation where a loan default occurs, the payments made will go towards clearing the first loan before the second. Homeowners take out second mortgages for different reasons. One reason could be to consolidate multiple debts. In addition to this, the money you borrow against the equity of your home can be used to meet immediate or urgent financial needs also. Listed below are some aspects you will have to consider before opting for a second loan against your home.

Convenience of borrowing

One of the main reasons why homeowners opt for a second mortgage despite the risks associated with it is that it offers them access to a large sum of money conveniently. It is easier to borrow against your home equity in comparison to obtaining an unsecured loan from the bank or lender. Home equity loans are generally bigger than other loans as lenders are willing to lend money against a property of high value.

Carry out a risk evaluation

Second mortgages can be used to meet a number of important expenses. While borrowing money against your home may be the only solution in certain situations, you should also be cautious when taking out such a mortgage. You should evaluate the risks involved in taking a second mortgage, the penalty for defaulting and the effect this will have on your ownership over the property.

As a homeowner, you have the right to take as many loans as you want against your home, but remember that old loans will take precedence over the new ones. If your home goes into foreclosure and is auctioned, the first mortgage lender will have to be repaid first. However, most often the other money lenders too are present at a foreclosure auction to see how much the sale fetches and can demand that they be paid once the first mortgage has been cleared.

Choose the right lender

Second mortgages can be availed from most banks and lending institutions. Generally, as second mortgages involve high amounts, it is best to consult a financial advisor before you take out the mortgage. One of the best ways to obtain a home loan is to talk to your local bank or the money lender who has given you the first mortgage, especially if the service of the lender is agreeable to you.

Benefits of availing second mortgages

The main benefit of availing second mortgages is that it makes a large sum of cash available to you. Also, the interest rate on such a mortgage is lower than that on a credit card. You can use the money to remodel your home, to meet emergency medical expenses, consolidate several debts and also to fund college education.

Before you take out a second mortgage, you should research the interest rates, terms offered by different lenders. You should also determine if the financial need you want to meet by taking out the mortgage is worth risking your home.