At some point, you, as a homeowner, you may need some extra money which can be for a variety of purposes. You might be thinking of upgrading and remodelling your kitchen, adding on an extra bathroom or even an additional room to your home. Your children might be looking to go to college and need help with the financing. The reason for needing a large chunk of change can be quite varied.
The financing options you might be considering could include in using your credit cards or getting a personal loan. Needless to say, the interest rates are credit cards are exorbitant and the personal loans can also be costly. There is another way, especially if you’ve owned you own home for a number of years. Why not consider getting a second mortgage on your home instead?
The main reason you might want to consider doing this is that the interest rates you will be paying will most likely be cheaper than a personal loan, and definitely cheaper than using your credit cards. You should be clear that though that you won’t get as good a deal as maybe you got on your first mortgage. The interest rates for second mortgages do tend to be higher than what lenders give out on a first mortgage, so be prepared for that eventuality.
How much equity do you have in the house? It depends. Equity is roughly equivalent to what the home is currently worth on the market less how much you have paid down the principle of the first mortgage. It is essentially the difference between how much you still owe on the mortgage and the value of the property.
How much can you borrow against for a second mortgage? Essentially you can borrow up to 80%, and up to a maximum of 90% of the equity that you have built up in your home. If you want to borrow up to the 90% range, than you will be required to get mortgage default insurance which might be difficult.
The key thing to remember if you’re thinking of getting a second mortgage is to never borrow more than you can afford. Your home is going to be the collateral. Just like a first mortgage, if you default on paying the loan on time with your second mortgage, you could end up losing your home as a foreclosure.
Your choices of second mortgage are the same as a first mortgage. You can choose between either a fixed or a variable second mortgage.
Qualifying for a second mortgage is pretty much the same process you went through for a first mortgage. You have to have a good credit score, so you must check your credit rating before applying to ensure no mistakes have been made. You will also be expected to provide and show your income and earnings, and also provide information on all your current debts and existing loans. So remember, you have to upgrade all this information so that it is current before you apply.
You also have to remember that their may be some fees that you will have to pay out of pocket such as appraiser fees, legal fees and property search fees. The loan itself may also entail some closing fees as well.
It’s always best to shop around to get the best rates. One of the best ways to find the best rates for a second mortgage is to use the services of a mortgage broker.
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