Businesses cannot thrive without adequate funds for their capital and operating expenses. It cannot grow without funds for expansion services and growth-oriented endeavours. But, not everyone is enthusiastic in putting their house on the line when getting a loan. While a second mortgage is a type of loan that lets you borrow a substantial amount –of money against the value of your home, some are sceptical about it.
Your home is considered as an asset, waiting to happen. As Robert Kiyosaki, a famous real estate business mogul said that a house is a liability when it takes money from you. The only time it becomes an asset is when you profit from it. While getting second mortgages cannot be considered as profiting from your home, still, it activates your asset—your property becomes a tool that you can use to secure your finances.
Understanding Second Mortgage
Getting a second mortgage simply means obtaining a loan while using your home as collateral. It is like getting a loan to buy your home. It is called a “second” mortgage because the first loan is the amount of money you used to buy your home—it holds a lien on the property you bought with it.
Second mortgage is the loan you take on top of the first mortgage. It does not replace your first mortgage. You are simply tapping into the equity in your home, which you have built up with your monthly payments or through the increase in the market value of your home.
For example, your first mortgage is $10000. You already paid $5000. When you take a second mortgage you are only getting a loan on your equity—the $500 you paid on your mortgage. If the original value of your home is $10,000 but because of the recent developments in your area and some home improvement projects you did, your home was valued at $13,000. Then, you can get a second mortgage on the $3000 equity of you home—or the increase in its value.
Pros of a second mortgage
Access a higher loan amount compared to short-term business loans.
Second mortgages allow you to borrow a huge sum of money because it is secured against your home. You can access as much as 80% of your home equity.
Lower interest rates:
A secured loan like the second mortgage has lower interest rates than other types of unsecured debt. It is because a secured loan poses a lower risk to the lender compared to unsecured business loans. In fact, while credit cards and other unsecured personal loans charge 2-digit interest rates, the interest rates in second mortgaged are usually in the single digits.
Possible tax deductions: Contact your local revenue office for more information on tax deductions for the interest you paid on the second mortgage.
It is a multi-purpose loan.
Unlike business loans, you don’t have to prepare a business plan and other financial documents to apply for a second mortgage. NSW Mortgage Corp has limited requirements that are designed for the borrowers’ convenience.
- You can fund your home improvement projects, in order to increase its value or sell it at a higher price.
- You can use it to avoid paying your private mortgage insurance. If you have several high consumer debts, you can also get a second mortgage to consolidate your debts. The rate may be lower because you are switching from unsecured debts to a secured one. But, be careful with your repayment schedules. Make sure that you have enough money to repay your monthly payments because defaults can definitely cost your house.
- Pay for your child’s education. If you have kids in college, you may be struggling with the high cost of school fees. One of the best ways to handle this is to tap into your home’s equity. After all, your children’s education is worth all the sacrifices. The only problem is when you cannot see a concrete way to pay it on time. That is why it is important to discuss your financial situation with your mortgage company to ensure that you will have all the affordable options so you will not lose your home in the long run.
How to get the best rates for your second mortgage
There’s nothing wrong in shopping around and getting quotes from different sources. But, be sure that you are only making a no-credit-check inquiry. Otherwise, your future lenders will notice them on your credit file. They may interpret it as a desperate attempt to get as many loans as possible.
You can start with your local bank, credit union and mortgage brokers in your area. If you have a low credit score, it is advisable to look for mortgage companies catering to the ends of people with bad credit. We accommodate individuals and businesses with poor credit score and provide them with reasonable rates and convenient loan terms.
Contact NSW Mortgage Corp and learn more about the most affordable second mortgage loan package for your individual and business needs today.