Benefits of Second Mortgage
“ Does the word second mortgage scare you? Does it sound like you are going into a loss? Do you often hear myths and rumors like a second mortgage means you will be paying debt your entire life? “
Well, we all often hear such rumors and myths when we are planning to mortgage the apartment or the building. Many of us are scared hearing the word loss without actually knowing what mortgaging means. Why don’t we find out what the fuss is all about and crack some myth busters!
What is a second mortgage and how can you benefit from it? -These should be the basic questions you ask yourself or try to find out rather than getting upset about what others have to comment on it.
What is a second mortgage?
Basically, a second mortgage is a loan where your home stays as a collateral. You borrow the loan against the home’s equity. Second mortgages are often done to pay off your debt, renovate your home, make some major investments. The second mortgages are liens secured by your home, although failure to pay back your debt will result in the lender taking your home to fulfill the debt payment, which is the baseline condition for any kind of loan you borrow.
Types of Mortgages
- The loan you receive on behalf of your home’s equity to use accordingly. The payback is dependent on a fixed rate of interest over 5 to 20+ years based on the amount decided mutually.
- The loan that you take on credit. Like a credit card, the amount you use during a set interval has to be paid back with interest. HELOC is a home equity line of credit. You can borrow upto a limit, pay back and can continue borrowing thereafter.
Benefits of second mortgage
- The mortgage rates are comparatively lower than the interest credits and personal loans provided now-a-days. One can use the mortgaged amount to make a bug purchase, put off a debt, and can put the fund into any virtual investment if needed.
- The loan that you borrow with your second mortgage can be paid back with a fixed rate of interest. You can cash out the amount you have borrowed and can put into home improvements, payment of medical bills, college tuition fee payment, major home repairs; these payments can be written off while paying tax with various mortgage tax deduction schemes and conditions.
- The time to pay your second mortgage loan is comparatively higher; one can pay the amount as long as 30 years.
You will be a good candidate to get a second mortgage–
- Your payment history should not have any recently missed payment records.
- It is advisable not to exceed the debt-to-income ratio by more than 40%-43%.
- The borrower needs to have at least 15-20% equity of the home he/she would mortgage. The maximum amount one can borrow is 85% of the existing equity.
- Credit score plays a vital role for being qualified for the second mortgage. A good credit score increases the chances of getting the second mortgage contract.