Meeting needs and requirements can get quite difficult at times. Loan is thus often an easy solution for such problems. But too many loans can be chaotic. So it would be wise to consolidate your debts into mortgage. You can either refinance or take a second mortgage to consolidate your loans.
What Is A Second Mortgage?
Simply put, second mortgage is another mortgage loan taken while a previously taken mortgage is still in effect. It has a lower interest rate and hence it means lower monthly payment and provides you scope to save money as well. However, the term of your loan determines whether you save money or not because you have to pay interest for your second mortgage as well. If you take more time to pay off your loan then you would end up paying more interests.
What Are The Different Types Of Second Mortgage?
Second mortgages have become very popular because of lower interest and debt consolidation feature. Here are the different types of second mortgages which are alluring more and more customers.
- Lump sum: This is typical mortgage loan where a lender lends a lump sum amount of money and you can use the money at your discretion. It is a one-time loan that allows you to pay back the loan amount slowly and with fixed monthly installments. The paid amount is one part of the interest and some of the original loan amount.
- Line of credit: The term nearly defines this particular type of second mortgage. In this type of mortgage, you would be getting a maximum borrowing limit. You can borrow not at once but multiple times until you reach the maximum borrowing limit. You can borrow money according to your requirements for making large purchases or to support different stages of your house extension.
- Second mortgage in excess: This particular type of loan is very tempting. You can borrow a mortgage loan which is more than the mortgaged property. However, experts suggest you not to fall for this particular type of mortgage, it’s highly risky. You would also need to show a very good credit rating to be considered for this type of mortgage loan.
These kinds of loans are not that common, however, there may arise some need which could be well met with any of these types of mortgages, especially second mortgage loans. If you end up with the need of taking loan or any of these particular types, then it would be wise to take the suggestions from a mortgage broker. He is in the best position to gauge the market and offer your important suggestions for choosing the most appropriate loan. He would also explain you the pros and cons of different loans and help you arrive at a decision.
Which Lenders Provide Second Mortgage Loans?
There are a number of specialized organizations which lend second mortgage loans like specialized loan providing companies, regular high street mortgage lenders and others. These organizations have certain terms and conditions like certain fees, rate of interest and loan repayment schedules, which you have to comply with to be eligible for any of the different types of loans. The terms and conditions may also vary so before you opt for any particular type of loan it is always advisable to check other companies as well.
Important Things You Must Know and Consider Before Taking Second Mortgages
Lenders consider second mortgages riskier than first mortgages. So, the terms and conditions applied on the loan are often very restrictive and comes with higher interest rates. It would be wise to know and consider a few things before you decide to go for a second mortgage. Let’s take a look at them.
- What the early repayment fees would be?
- If need arises or situation demands and if you have to sell your house, then what would happen? In that case, could the company allow you to pay off the second mortgage, or you would have to re-secure it on your new house? In any case, what amount would you have to pay as its fees?
- Would you need payment protection insurance? In case you need it, and then cross check with similar mortgages or competing companies. You may come around a company offering cheaper insurance than the one offered by your present lender.
- Is there any scope of making overpayments? Or can you have the facility to take payment holidays, in any relevant need arises?
- Will remortgaging be a better option for you? If the company allows you remortgaging then you can enjoy a lower rate of interest.
It is very important to note and understand that just like your first mortgage; even your second mortgage is a loan against the value of your home. Failing to repay the loan amount, you would lose your property. Even if you have cleared your first mortgage, the lending organization would then repossess your house.