Second Mortgages Whitby
A second mortgage is exactly what it sounds like: an additional loan taken out on an already mortgaged property. A second mortgage is a riskier investment for the lender than the first because they come second on the property’s title. While this doesn’t sound like a huge deal, it can have some pretty serious consequences. If you, the homeowner, defaulted on your loan and the property was seized, the lender in first position gets paid out first, so the lender in second position is at a higher risk of not being paid in full. To combat this financial risk, the interest rate on a second mortgage is always higher than the first.
For homeowners who have good credit and more than 20% equity available, the best option for a second mortgage is a home equity line of credit. If you don’t meet these criteria, you can get a second mortgage via private lender or trust company.
How Do I Qualify for a Second Mortgage and Why Would I Need One?
A second mortgage allows homeowners to consolidate debt. Since interest rates for credit cards, unsecured lines of credit, or car leases tend to be higher than for a second mortgage, it allows you to pay less interest overall. Consolidation of your debt helps improve your credit score and will allow you to qualify for a mortgage with a private lender sooner.
A lender will look at 4 areas when you try to qualify for a second mortgage:
- The higher percentage of equity you have in your home, the higher your chances of qualification will be. A larger down payment also always decreases the risk that a lender takes on when initiating a loan. Other beneficial factors include regular payments toward bills including phone service, utilities, and insurance, or a letter of confirmation from your service providers.
- Naturally, a lender will want to confirm that you have a reliable and adequate source of income to ensure you can make your payments regularly and on time.
- Credit Score. Since a good credit score speaks to financial security and solid money management skills, a higher score will reduce your interest rates since it tells the lender that you are not a high-risk investment.
- Lenders need to secure their investment on the off chance that you cannot make payments, so property boosts their confidence in their loan repayment.
If you’re looking into a second mortgage in Whitby, contact Dunlop Mortgages to learn more about the process, the risks, and the benefits.