No matter the reason behind it, taking out a second mortgage is a big decision with broad financial impacts. Before you obtain a second mortgage for your home, it’s essential to understand what a second mortgage is, why it may be an option for you, and how to get one.
What is a second mortgage?
A second mortgage, sometimes called a junior lien, is a loan that allows you to leverage your home equity as readily available funds without putting your house on the market. Your home’s current value on the market, minus the balance remaining on your mortgage, determines your home equity.
What types of second mortgages are there?
The two types of second mortgages you can apply for using your home equity are home equity loans and home equity lines of credit. Home equity loans provide a single lump sum of money that you pay back in a predetermined period via fixed monthly payments.
Conversely, home equity lines of credit, or HELOC, function similarly to credit cards by providing a set credit limit that can be borrowed during the draw period, followed by a repayment period. Typically, during the repayment period of a HELOC, you won’t be eligible to borrow additional funds.
Why get a second mortgage?
There are a variety of reasons why you might be considering a second mortgage for your home. The most common reasons that people seek access to the equity in their homes and apply for second mortgages are:
- remodeling or making improvements to your property
- consolidating or paying off debts with a higher interest rate
- financing a wedding, vacation, or other significant expenses
- investing or opening a business
- to make a down payment
What are the pros and cons of getting a second mortgage?
As with any major financial decision, there are many advantages and disadvantages to taking out a second mortgage. Remember to consider all of the pros and cons before applying, such as:
- Pro: Second mortgage loans are often less expensive than other debts.
- Pro: Your first mortgage doesn’t have to be refinanced.
- Pro: Second mortgages offer potential tax benefits, in addition to lower interest rates and higher loan amounts than other types of loans.
- Con: Your home is the collateral, so there’s a risk of foreclosure upon non-repayment.
- Con: Depending on the lender you choose, there may be additional maintenance or membership fees annually.
- Con: With a home equity loan, you’ll likely be responsible for closing costs which can cost between 2% and 5% of the total cost of the loan.
How do I get a second mortgage?
You can use the cash inside your home by obtaining your second mortgage with rates as low as 9.95% from Quick Loans NZ and be approved in as little as 60 minutes. Click here to apply online today, and you’ll have the cash from your loan in your account in a day or less. And with property prices rises in New Zealand, effectively adding hundreds of thousands in equity to the value of houses, you may be surprised to find out just how much your home could be worth.