Second Mortgage Considerations
“Is A Second Mortgage Your Best Option For Financing, or Are There Other Options To Consider?”
A second mortgage may or may not be the best option for securing additional funds from the equity in your property.
There are a few different things to consider before committing to an additional mortgage.
Second mortgages will carry higher rates of interest than 1st mortgages and will provide less leverage (total mortgages outstanding divided by total property value).
There are also less options available for second mortgages compared to first mortgages with many lenders not offering them at all.
Too often I see clients, that require additional funds, automatically want a second mortgage when it may not be the best approach to secure the money they need.
So when should you consider a second mortgage?
- When the cost of refinancing the first mortgage is greater than the cost of getting a second mortgage in place.
- When you have a low long term interest rate on the first mortgage that will end up being higher after refinancing.
- When you want to better manage your interest risk by having one mortgage at a fixed rate and one mortgage at a variable rate.
- When you have a down turn in your credit that would significantly increase the rate of interest on your first mortgage if it was refinanced.
- When you have a short term financing need that is going to be paid off relatively quickly and you want to match the mortgage repayment terms to your own time line for repayment.
- When your existing bank offers you a superior rate to retain your business in their own second mortgage product.
Second mortgages can be used for anything from home improvements to debt consolidations with the later being the most common during the recent recession.
In the residential mortgage market, private lenders finance a large number of seconds due to the strength of the underlying security and the lack of available bank financing for people with poor to bad credit.
So basically, you should consider a 2nd mortgage in situations where its the best option in terms of features and costs.
The best way to know for sure what the right course of action is would be to give me a call and I’ll perform a free assessment that clearly outlines your best options.
If a second mortgage makes the most sense, then I’ll get you set up with a mortgage plan that fits your needs.