What Is a Second Mortgage?
Before diving into the subject of second mortgages, it is essential that we define the terminology first. In simple words, a second mortgage is a loan that employs your current residential property as collateral, a case that is compatible to a loan that you might have used to secure your property in question in the first place. This loan is known as the second mortgage because the purchase loan is most often the first loan that is determined by the loan that is currently in your present house. Second mortgages make use of the equity that is placed on your home, which translates to the market value of your house in relation to any of the loan balances. This equity is prone to increasing or decreasing, nevertheless, in an ideal situation, this equity is only subject to an increase over time.
Second mortgages have several subcategories as listed below.
Lump Sum Second Mortgage
One of the most common second mortgages is a one-time loan that furnishes you with the lump sum of money that can be used for attaining your purposes. In the case of lump sum second mortgage loans, you would have to repay it over a course of time, most commonly in a scheme of monthly payments. With each installment of payment, you would have two additionally incur the interest cost alongside a part of your loan balance, a process that is termed as a motivation amortization.
The Line Of Credit Second Mortgage
A second mortgage can also be secured by using a line of credit that can be withdrawn. Under this subcategory, you would not have to necessarily take any money although you would always have that option to benefit from. Your mortgage lender would be demarcating the maximum amount that you can borrow, known as the borrowing limit, which you can borrow until you reach the limit. This mortgage type is comparable to the working of a credit card, which can be repaired and borrowed oven extended period of time.
Rate Choices Second Mortgage
The rate choices second mortgage is determined by the kind of loan that you would need and the requirements of your and purposes. This would mean that your loan would include a fixed interest rate that would facilitate your payments for the future. These variable rate loans are made available to the consumers quite often.
Advantages of Second Mortgages
The Amount of The Loan
One of the biggest advantages of securing a second mortgage loan is that you are permitted to borrow a large amount of money. This is because the second mortgage loan is dependent on your current house, which has considerable value, to begin with. This signifies that you would be able to borrow an amount that is superfluous to the amount compared to a usual loan. Even though the actual amount would be determined by your lender and the kind of deal that they advance to you, it has been estimated that you can borrow up to 80% of your home’s actual value.
Rate Of Interest
Another benefit that can be enjoyed from a second mortgage is that the interest rates for such loans are often comparatively lower. This is premised on the fact that your house and its value does not pose as a risk for the lender, especially when compared to personal loans which are mostly unsecured, such as credit cards.
Disadvantage of Second Mortgages
This goes without saying, but one of the biggest risks involved with a second mortgage is that your house is used as a pawn in the game. If due to any contingencies you have to refrain from making the required payments, the lender will be able to secure control over your house through the clause of foreclosure. This obviously puts you and your family at risk. This is also the reason why taking out a second mortgage loan for current consumption costs is never advised.
If you require consultancy services and more information pertaining to the area of second mortgage loans, you can solicit the services of Best Mortgage Montreal.