Getting a second mortgage is a popular way to access home equity, but not everyone is well-versed with it. As a homeowner, you may have heard of a second mortgage and perhaps considering applying for one right now. Before you do so, make sure to read up on the things to know when getting a second mortgage. We will talk about alternatives, possible costs to you, and more below.
Why Get a Second Mortgage?
A second mortgage is a loan that allows a homeowner to borrow against the home equity that they have built up in their property. It goes on top of a primary mortgage that was used to purchase the home. Because of this, a second mortgage requires additional payment on top of the first mortgage and failure to do so can result in losing one’s home.
Why do people get a second mortgage then? The answer is because in most cases, getting a second mortgage vastly outweighs the risks of getting one. People use the funds from their second mortgage to pay for debt consolidation, cover a down payment, fund higher education, and pay for home improvement. Although a second mortgage means additional risks and costs, the benefits of using it to achieve financial goals are often worth it.
Types of Second Mortgage
There are several types of second mortgage and they are classed into two forms. You can get one that dispenses cash as a lump sum or one that gives you a line of credit. A home equity loan will let you access funds in one go as a lump sum. This may be a better option for those who want to use the funds for a big expense such as home renovation or debt consolidation. For those who want more freedom to use their funds and the ability to use as little or as much as needed when it is needed, a home equity line of credit could be the better option. The different forms of second mortgage come with their own pros and cons. Your mortgage professional should be able to discuss with you which one will be a better fit for your needs.
Is it Expensive to Get a Second Mortgage?
The costs associated with getting a second mortgage varies based on your lender, how much you are borrowing, and what type of second mortgage you will be getting. You’ll have to be ready to pay for appraisal, recording fees, underwriting or application fee, possible second-lien fee, and more. Paying a closing fee is expected too and that alone could be worth a few thousand dollars.
Is There an Alternative to Getting a Second Mortgage?
Refinancing your mortgage is an option if you cannot qualify for a second mortgage. With a mortgage refinance, there is a possibility that you can get less than what you were aiming for with a second mortgage depending on several factors but there are benefits as well. This option is best discussed with a mortgage professional.
Applying for a second mortgage can be a tricky process that may result in expensive mistakes if not done properly. If you need help getting a second mortgage in Canada, contact us at Homebase Mortgages.