Many individuals are experiencing financial difficulties at this time and may be tempted to apply for a second mortgage to meet their financial needs. Some people choose to apply for a second mortgage to consolidate their debts, use as a down payment for another property, to fund a business, or to pay for home improvement. While it is true that you can use a second mortgage for almost anything, including helping you with your cash flow during the COVID-19 pandemic, you should consider the possible impact of every possible scenario that can happen before finalizing your decision.
How Does a Second Mortgage Work?
A second mortgage works by allowing a homeowner access to the property’s home equity. It is easier to qualify for than other loans and comes with a reasonable interest because the loan is secured by the property’s value. The amount that the homeowner can borrow depends on the home equity and can be estimated by getting the difference between the current market price minus existing debts on the property. Once approved, the funds are given according to the terms based on the type of second mortgage. Inability to pay based on the terms may result in losing the property in question.
Common Types of Second Mortgage
The main types of second mortgage are classified according to how the money is made accessible to the borrower. A home equity loan gives the money as a lump sum and is paid with fixed monthly payments. A HELOC is given as a credit line with a drawing period and monthly payments are based on the actual amount used by the borrower.
Is It Smart to Apply for a Second Mortgage Now?
Whether a second mortgage may be beneficial or not for you depends on a variety of factors. Generally speaking, you will not qualify for a mortgage loan if the lender deemed that you will not be able to pay back. If you do qualify for a second mortgage, you generally have a choice between the types of second mortgage to decide which one may be good for you.
The timing for getting a second mortgage varies as well. With how things are now, you have to consider your income for the next months and years to determine which loan option may be the best for you. Objectively speaking, now is a good time to apply for a second mortgage because qualifications are generally still the same compared to prior to the pandemic.
The whole process may take as little as days to a few weeks. Because your home’s current market is an important factor in determining your home equity, a professional appraisal is needed along with some documentation regarding your proof of income, credit score, employment information, and other debts for your application to be processed and approved.
Contact us today if you have a lot of questions about getting a second mortgage that is not addressed in our frequently asked questions. We understand that some things may need to be considered based on individual circumstances. Talk to us today!