Many people get excited when they learned that they can get a loan out of their properties even if they are still paying for it. This type of loan is called second mortgage and many private lenders are willing to give it most homeowners.
But before you rush out to get yourself a second mortgage, you have to know all the risks associated with it. The second mortgage won’t wipe out your first mortgage so in essence, you’ll be paying for two loans each month. That alone could be a burden to your finances. But with proper planning, it might just be the solution to all your woes.
Where to Get a Second Mortgage
A second mortgage is oftentimes referred to as a risky loan. As such, banks stay clear out of it. If you need to get a second mortgage, the entities that are willing to give it to you aren’t the traditional financial institutions. You’ll most likely get it only from private lenders.
It’s true that private mortgage lenders tend to apply higher interest rates than banks. But that’s understandable given the risks involved. The best thing about private lenders is that they don’t qualify borrowers in the same way that banks do. They are more lenient, so to speak.
Private mortgage lenders mostly base the reason for approving the loan on the property used as security. They don’t care much about the borrower’s credit standing or finances. Because the property is used as security, they can always foreclose it if and when the borrower fails to pay.
Second Mortgage Basics
As previously stated, second mortgages come at a higher interest rate than the first mortgage. Additionally, there are also a few other fees associated with it. When it comes to charges, the one that’s most prominent is the pre-payment penalties. Many private lenders won’t allow borrowers to pay off the loan earlier than what was agreed because they want to get the interest in full.
The usual mode of payment followed is the interest-only plan. Here, the borrower is only required to pay off the monthly interest but they need to pay the whole amount at the end of the term. This is the reason why second mortgages look appealing only to people who will eventually sell their properties after renovating them. Take note that most second mortgages are short-term loans.
Is a Second Mortgage a Good Option?
A second mortgage may be rather expensive but if it can get you out of your present financial situation, then you should take it. Using your home as leverage to consolidate your debts is a good decision if it’s planned well and done right. Second mortgages may not come cheap, but they may also be convenient.
If you have a lot of equity in your home, then you have some leverage. If you need to consolidate your debt, then a second mortgage is a good option. Always plan out everything and consider the end game. If you want to get a second mortgage but would like to get more information about it, find a reputable company that offers BSM mortgages. They should be able to help you out.