There are a variety of ways where taking out a second mortgage on your home can make sense. Not only that, if you use a second mortgage wisely it can actually be used so that it pays for itself or can save you money.
Second Mortgages and Home Renovation Projects
A second mortgage can be used in a variety of ways. A home renovation is one major reason why many people take out a second mortgage on their home. You can use it to complete a major home renovation project such as completing a total kitchen makeover to make your kitchen look more modern.
Taking out a second mortgage loan can be also be used to add another bathroom to your home, a new garage or get a new roof. A second mortgage can give you the opportunity to add an extra room to your home.
You can use it to re-finish the basement or use it to fix costly foundations repairs, or even to underpin and expand the size of your basement. In many ways, using a second mortgage will add value to your home by making it more appealing to a prospective buyer.
There are many home improvement projects which have a great ROI (Return on Investment). This means when you perform a project that increases the overall square footage of your home your second mortgage may literally pay for itself which can make the loan worthwhile.
Second Mortgages are Cheaper
The first thing you should know is that you will be paying a higher interest rate for your second mortgage than what you are currently paying for your first mortgage. The good news is that mortgage interest rates are still very low which makes taking out a second mortgage very appealing for that very reason.
For example, if you needed to consolidate your debts to get a lower monthly payment, you might be tempted to accomplish your debt consolidation by taking out a personal loan. You might want to hold off doing this.
If you have sufficient equity built up n your home, you might want to do some comparison shopping to check out the differences between interest rates. You should see what you would be paying for a personal loan versus what you would be paying if you took out a second mortgage instead. The differences in interest rates might surprise you, and you might save a lot more money by taking out a second mortgage instead of a personal loan.
Use a Second Mortgage as a Down Payment
If you’re buying a home, and don’t have 20% to use as your down payment, there’s a very good chance that you will have get mortgage insurance with CMHC. Along with what you are paying for your first mortgage, you will also be footing the bill to pay for the mortgage insurance. The lower your down payment, the more mortgage insurance you will have to pay and this can substantially eat up your monthly budget leaving you more financially challenged than you wanted to be.
Instead of mortgage insurance, you do have the option of making up the difference qualify for that 20% down payment by taking out a second mortgage in the form of a HELOC (Home Equity Line of Credit) or can even use a home equity loan.
Many people today are opting to use the combination of a first mortgage and HELOC to make up the difference to get that 20% down payment and avoid the higher costs of mortgage insurance.
The best way to find out if this is the way to go is to sit down with a mortgage broker and they can help you do a cost comparison.
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