Buying a home is usually one of the largest purchases one makes in their lifetime. While some people can afford to buy property using cash upfront, the majority of people worldwide have to borrow funds from a financial institution to be able to afford the mortgage on the house.
This way they are able to get a mortgage loan to finance the purchase of the house.
What is a second mortgage?
This is a type of subordinate mortgage made while an original mortgage is still in effect. The loan is secured against the property.
How does a second mortgage work?
Interest rates on a second mortgage tend to be higher and the amount borrowed will be lower than for the first mortgage.
Many people will use a second mortgage as a loan for large expenditures. It is usually more appropriate for when you need large sums of money.
What is the difference between a home equity loan and a second mortgage?
A home equity line is a revolving line of credit. You can borrow up to a certain amount and make monthly payments, so it’s similar to a credit card.
A second mortgage is a loan that is paid out in one lump sum at the beginning of the loan. The payment amount and the term (length) of the loan are already set.
Advantages of getting a second mortgage:
The loan may be used for home improvements
It can be used for purchasing additional homes
Getting a second mortgage may allow for a bigger home
What are the disadvantages of getting a second mortgage?
You are risking your home. If you can’t pay the loan back, you risk foreclosure and being forced out of your property.
You should expect slightly higher rates.
There are hefty fees associated with a second mortgage.
