How to Get the Most Out of Your Second Mortgage
A second mortgage can be a lifeline for families struggling with debt or preparing for a major renovation project, and being able to borrow significant amounts of money against a secure asset like home equity is one of the biggest perks of homeownership.
But second mortgage also need to be used strategically. A home equity loan is still a loan, and for it to count as ‘good debt‘ rather than bad, it needs to be treated like an investment rather than a piggy bank.
This article will explore the best ways for homeowners to use their second mortgages, as well as some tips for getting the best rates for a second mortgage so you don't end up with a high-interest loan that will be difficult to pay off.
The Best Ways to Use a Second Mortgage
A second mortgage is a special type of loan secured by home equity. Home equity is the value you have built up in a property, calculated as the current market value of your home minus your outstanding mortgage. If you've owned your home for a few years, you've likely already built up a considerable amount of value to borrow against.
In order to get the most out of this money, you need to treat it as a way of reducing costs or growing value. For example, you can use a second mortgage to:
- Consolidate debt at a lower interest rate
- Repair credit rating
- Fund emergency repairs
- Renovate your property to increase value
- Cover last-minute expenses that would otherwise generate unsecured debt
Because you will need to pay interest on your second mortgage, the last thing you want to do is use it as a slush fund, or a springboard to high-risk investment. Treating a second mortgage as a way of reducing or avoiding other loans will ensure that you don't end up spiraling even further into debt.
Getting the Best Second Mortgage Rates
Financiers tend to view second mortgages as slightly riskier than first mortgages. In the event of a default, the first mortgage takes precedence, with additional lenders being paid second. So, if you have a low credit score, this can drive interest rates up even further.
For this reason, it is important to explore as many options as possible before settling on a second mortgage provider, to ensure you find the best possible deal.
The easiest way to do this is by working with an Ontario-based mortgage broker like Burke Financial. Mortgage brokers help connect you with a variety of potential lenders, which means you may be able to choose between several different offers.
One of the best things about owning property is that, as an asset-holder, you can access capital much more easily than if you were simply applying for an unsecured loan. Using your equity strategically to manage debt and fund repairs means you can get approved for a loan more quickly and at a lower rate.
If you think a second mortgage is right for you, get in touch with a local mortgage broker today.