If you think that the only downside of second mortgage is losing your home when you cannot pay it back, you’re wrong. But, take note that the drawbacks are usually caused by poor financial management. First, let’s talk about the undeniable benefits of second mortgage. It is known for its undeniable benefits in terms of debt consolidation, funding home renovations, and paying for costly life events such as wedding and divorce. Some parents and grandparents also use the proceeds of the loan to co-pay for college fund. Others want to enjoy their free time by going into vacation.
Compared to other loans, it has a longer repayment term and lower interest rate. A second mortgage is also tax-deductible. It has a simple and fast loan approval-which can be as fast as 24 hours or less. If you want to find some extra cash, get a second mortgage to tap into your home’s value. The amount of loan depends on the amount of ownership or “equity” you built up on your property over the years. It is your home equity that’s secures your loan.
Now, here are the downsides of a second mortgage
Defaulting on your loan means that you will lose the equity you built up on your home. You will probably deal with the possibility of being kicked out of your home. You may have to pay an interest which is higher than your original mortgage. Depending on your lender, you may have to pay for the private mortgage insurance. And most importantly, it is extremely difficult to get a third mortgage. If you opt for interest only payment, you may end up paying more on interests. It is important to pay the principal off and the interest at the same time no matter how affordable the interest only payment may look like. If you don’t want any lien holder to go after you after the loan term ends, check if there is any remaining interest before your loan term ends and pay them. Lastly, the volatility of the housing market is also a downside of second mortgage. The value of the property may increase or decrease depending on the market. If financial catastrophe strikes you during recession, the amount of second mortgage may only be a small fraction of your equity.
Choose your lender wisely
Some banks refuse second mortgage applications despite the client’s good credit rating, high home appraisal value and numerous assets. Banks have their own criteria of checking the customers’ ability to pay the loans based on their deposits, assets and other financial factors. What if you don’t have extra money to deposit into the bank just to show off the loan officers that you are capable of paying back a loan? Second mortgage lenders usually charge interests that are typically higher than first mortgages-oftentimes, in double-digits. Unlike banks that seem too cautious about secondary mortgage, NSW Mortgage Corp shows more flexibility to their clients. It provides reasonable interests.
To learn more about second mortgages, get in contact with the team today!