The Risks and Benefits of Applying for a Second Mortgage

The Risks And Benefits Of Applying For A Second Mortgage


It is always advised to do plenty of research before applying for a loan. It’s important to understand all the responsibilities it comes with. A second mortgage comes indeed with certain risks, but it does have several benefits as well.

If necessity strikes, there’s the possibility that you could take out more than one mortgage for a commercial or residential property. The second mortgage is a loan you take out when you already have a mortgage in place. However, while this may be an ideal option for some, it might not be as great for other people.

Were you aware that you weren’t limited on one mortgage per property? Before deciding to take the leap, be confident that you understand the risks and benefits that a second mortgage brings with it.

The Risky Gamble

Taking out a second mortgage sounds neat, but there are a few drawbacks that you might want to consider before diving into the paperwork.

  • The risk of foreclosure: Since you will put your house on the line, you need to be very careful. If you fail to make the monthly payments, you risk losing your home.
  • More debt: By taking out another mortgage, you’ll owe even more money than you already do. If you plan on taking out a second mortgage, make sure that you have the means of paying both loans in the long term. If you have a stable job and an income that covers all your bills, then you should be safe.
  • Cautious lenders: Wouldn’t you be paranoid if you knew you were lending money to someone already in debt? This is the reason why most Australian lending companies are reluctant to grant second mortgages to people already in a good amount of debt. The entire process of getting a second mortgage might be tricky and long. Still, if you know that you can meet the lender’s requirements, go for it.
  • Higher fees: A second mortgage will usually have higher interest rates than the first one. This means that even if you take out the same sum, you will be paying more for it in interest. Similar to any other type of loan, if you are already in debt, the interest rates will not be the lowest ones. So, take that into consideration when you evaluate your possibility of paying the loan. Depending on the type of loan you apply for, you might have a fixed interest rate that remains the same in the years to come or a variable interest rate.
  • Limited withdrawal: While first mortgages offer generous withdrawals, a second mortgage may not let you borrow as much. On average, you will only be allowed 60-80% of the property’s value. Plus, only bigger institutions or banks will offer you second mortgages.Prepare yourself for the limits you will come across. Do some research until you find the best offer for your second mortgage. Talk to the lender and in the end, he/she might make you a better offer than you first anticipated.
  • Multiple-Loan Management: Managing a mortgage is tricky enough as it is; imagine how it will feel to do that with a second mortgage in the mix. It can be a very complicated process – especially if you aren’t dealing with the same lender. But, if you have a good credit score and made the payments for your first loan on time, then this will work as an effective recommendation letter.

It’s risky to get a second mortgage, so make sure that you understand all the implications. Before you apply for another loan, evaluate your financial situation from all points of view. Ask yourself “Can I afford another payment each month? Is the interest rate bigger than the benefits of the loan? Are my expenses exceeding my income? Do I meet the lender’s minimum requirements?”

The Greater Good

Taking out a second mortgage is risky – but it does come with some benefits:

  • Equity access: Second mortgages allow you to access your home equity, which will provide extra cash flow.
  • Refinancing alternative: Since refinancing involves a whole load of exit fees and break costs, a second mortgage may be a more convenient, tax-free option.
  • Debt consolidation: Since you will have access to your home equity, you may proceed towards consolidating your debts.
  • Renovation finances: A second mortgage may increase the value of the property if you use the money to repair or renovate your home.


It is always advised to do plenty of research before applying for a loan. It’s important to understand all the responsibilities it comes with. A second mortgage comes indeed with certain risks, but it does have several benefits as well.

All you’ll have to figure out is if the goods outweigh the bad. Once you have that figured out, contact us on 1300 137 778 or fill out the form. They provide quick mortgage solutions to people in Australia that are looking for a loan. So, it would be a good idea to pay them a visit and check out what they have to offer.

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