Planning to apply for a second mortgage this year? To help you through the process, we discuss 4 key tips that you should keep in mind.
What is a Second Mortgage?
First things first, what exactly is a second mortgage?
Otherwise known as a ‘junior-lien,’ this is a type of home loan that you can get in addition to the mortgage that you already used to purchase your home. It is different from a mortgage refinance. Taking out a junior-lien means adding an entirely new mortgage payment to your list of monthly obligations.
People often take out second mortgages to cover closing costs or a down payment, to pay for home improvements, to consolidate credit card debt, or to pay for other expenses.
Tips When Getting Second Mortgages
If you’re determined to get a junior-lien, here are 4 tips that you should keep in mind:
1. Do your research. If you’re confident in your ability to pay back the loan, getting a junior-lien can be a great source of funding. That said, please remember that second mortgages have their drawbacks as well.
If you’re interested in taking out a junior-lien, make sure to do your research. Familiarize yourself with and fully understand everything about second mortgages – both the good and the bad. It is particularly worth noting that this type of mortgage comes with a higher interest rate, more monthly bills, and will use your primary residence as collateral.
3. Identify what type of junior-lien you want. Second mortgages come in 2 types: a home equity line of credit or a home equity loan. Each option has both positives and negatives. Select the option that best suits your needs.
3. Choose the right timing. When you’re going for second mortgages, timing is highly important. The loan amount will depend on how much equity your house has, which in turn depends on how the value of your house has changed since you first took out a mortgage. If the housing market is down, wait (if possible) for the prices to go back up. Similar to other loans, interest rates play a crucial role in second mortgages.
4. Work with an experienced mortgage broker. Getting a junior-lien can be quite complicated. By working with an experienced mortgage broker, someone will help you navigate different mortgage options that work best for your particular situation. An experienced mortgage broker can help you navigate different challenges and help you start your junior-lien on the right foot.
Overall, obtaining a junior-lien is possible if you follow the tips listed above. Taking out a junior-lien can serve as an invaluable source of funding. However, please remember they are not without risks.
Not sure if taking out a second mortgage is a realistic option for you and your family? Schedule a consultation today so we can talk about your options!