Getting a second mortgage is a huge financial step that requires thoughtful consideration and planning. It isn’t something that you can do just out of the blue or for no real reason because getting approved for a second mortgage means getting a home loan with your property as the collateral. It is best to make sure that you truly understand what you’re getting yourself into before getting a second mortgage.
Is a Second Mortgage Risky?
Like any other secured loans, a second mortgage carries risks for the borrower as well as the lender. The lender shoulders the risk of not getting paid because of the nature of the second mortgage as a secondary loan; and thus, not a priority for payment like the primary mortgage. The borrower carries the risk of losing his or her home if he or she can’t honour the terms. The risks are real but they shouldn’t be an issue if the borrower has the ability to pay and the wisdom to not borrow more than what he or she can afford.
Reasons for Getting a Second Mortgage
People apply for a second mortgage for a variety of reasons. The most commons ones are to fund a home renovation, pay for higher education, or to spend for a big project. Another possible reason is not wanting to break the terms of an existing mortgage as well as avoid having to pay associated fees. Some people apply for a second mortgage so that they can use their home equity for debt consolidation.
With the above said, it is easy to see how getting a second mortgage can be of great help as long as the funds acquired are used in a smart way. One doesn’t have to be in dire financial straits to consider getting one.
Fees and Interest for a Second Mortgage
Because a second mortgage is riskier for the lender as compared to a primary mortgage, it is understandable that the interest rate is also higher. However, it is not as high as the interest imposed for personal loans such as those for credit cards.
Note that a second mortgage comes with standard fees as well as other possible fees if you decide to pay more or pay earlier. To make sure that you’ll not be charged penalty fees, read the fine print in your second mortgage terms and familiarize yourself with the second mortgage ‘rules’ that apply to your loan contract. Your mortgage broker should also help you understand the terms if you availed of professional mortgage services.
Should You Get a Second Mortgage?
A second mortgage can give you convenience and financial elbow room to help get you right on track if done right. You must consider what you’ll be using the loan for as well as your cash flow for the duration of the terms to make sure that there won’t be issues. The benefits must outweigh any possible cons. Do you need professional help for getting a second mortgage? Contact us and we’ll do our best to be of assistance.