Second Mortgage Ajax – How to Qualify
If you need finances, you have the option of taking a second mortgage on your property. Many homeowners tap into the accrued equity on their home to raise money for say, consolidating a debt. The loan is called a second mortgage since the house is already mortgaged. While a second loan carries a higher rate of interest, these interest rates are typically lower than the rates you might pay on other sources of funds. Like, for example, credit cards, car loan payments, or unsecured lines of credit. Here’s how it works:
- If you have a good credit rating and more than 20% equity in your home, getting a home equity line of credit as a second mortgage is easy.
- Homeowners having a weaker credit score and less than 20% equity would have to apply for a loan through a trust company or private lender.
- Using a second mortgage for debt consolidation helps you improve your credit score since you’ll meet other financial commitments.
First Mortgage Lenders Have First Priority in Case of Default
Like the experts at Dunlop Mortgage explain, a second mortgage is a risky undertaking for the lender. In case borrowers default on the loan, proceeds from the possession and sale of the property are directed toward paying off the first mortgage on priority. The second lender runs a higher risk of not recovering the loan amount entirely. For this reason, you’ll pay a higher interest rate for the second mortgage. In essence, you’re compensating for the increased risk.
Criteria for Qualifying for a Second Mortgage
You’ll likely go through more stringent screening processes to qualify for a second mortgage. For instance:
- Higher equity on the home raises your probability of getting approval for a second mortgage
- Higher down payment makes it a lower-risk mortgage
- Making regular payments for utility bills, insurance premiums, and other expenses projects you as a safe investment.
- Long-term employment and fixed source of income ensures lenders that you can keep up with payments
- Robust credit scores prove that you’re a dependable borrower.
- If you can provide some form of collateral or guarantee, you’ll find an approval for the second mortgage even if your credit scores are low.