The Risks of Getting a Second Mortgage

The Risks of Getting a Second Mortgage


In this article, we will discuss the risks of getting a second mortgage. We will present some examples from which you may learn a thing or two and decide whether it is beneficial to get a second mortgage or not.

A second mortgage can help you with your property as long as you are confident that it is put to good use and you can pay it back. It can take you a lifetime to pay a mortgage and can quickly turn into a nightmare if you don’t have the financial resources to control it.

In this article, we will discuss the risks of getting a second mortgage. We will present some examples from which you may learn a thing or two and decide whether it is beneficial to get a second mortgage or not.

You Will Get into More Debt

This one should be common sense. When taking a second mortgage or any additional loan, you will always take up more debt. You are basically borrowing more money that comes with interest rate and other types of taxes. Expecting to pay the same is out of the question.

But the problem is: what happens if you default? See, when you cannot afford to pay one, you might not be able to pay for the second one either. In that case, you might end up losing your property and then some. Taking a second mortgage is a risk and you need to analyse the situation carefully.

Take into Consideration the Fees

Taking a second mortgage wouldn’t be a problem if it wasn’t for all those fees that come with it. In the long run, those fees will end up costing you more than you expected. Ask for some professional advice before requesting another mortgage.

You’ll Have Little to no Choice

When it comes to a second mortgage, only a few banks and lenders can approve such a request. Those are usually the biggest types of lenders you can find and what they offer in terms of rates, loan term, etc. may not be what you are looking for.

The chances are that you will get only mediocre deals, but you have nowhere else to go. So, if you really need a second mortgage, you will have to accept an agreement that doesn’t favour you in the long run.

Of course, that isn’t always the case, but you have to understand that a second mortgage doesn’t sound great even for a lender. We recommend taking your time when searching for the best bank or lender you can find. Also, seeking expert advice is recommended.

You’ll Have Two Loans to Pay

A mortgage can be tricky to handle, but two can make your life hard. Now, it is in your interest to try your best and take the second mortgage from the same lender because if you take it from another bank, things will get complicated fast.

Loan-to-Value Ratio

A second mortgage will usually mean sixty to eighty percent of the standard value of your home. This happens because a second mortgage attracts a lower loan-to-value ratio meaning that you won’t get the same amount of money as you did with your first loan.

You can invest in your home, but that will require money, of course. Can this investment raise the loan-to-value ratio? Is it worth the time and money? These are the questions that only a financial expert or someone who can do a property valuation can answer.

There are no easy answers when it comes to a loan of this size.

Do the Math

Now take all these factors into consideration and ask yourself: do I really need a second mortgage? Does this loan benefit me more than it causes me to lose money?

What Happens If You Have Bad Credit?

Only a few Aussies have the courage and the necessary resources to get a second mortgage. It isn’t as hard as one might think to get your request approved for this type of mortgage, but if you cannot manage it, this will impact your credit score. You must plan before requesting a second mortgage.

If this mortgage affects your credit score and you need another loan for an emergency, you might get rejected or receive a smaller loan with a high-interest rate.

Legal Actions

You might end up losing your house or some of your property if you default on your second or even your first mortgage. Sometimes, it is like a domino effect, once you knock one down, the rest will also be affected.


For more information regarding the risks and benefits of a second mortgage, we recommend that you speak to one of our consultants for a free assessment before you jump into any decisions. Call us on 1300 137 778 or enquire now!

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