4 Financial Benefits of Getting a Second Mortgage

A second mortgage, also known as a home equity line of credit (HELOC), is a loan that allows you to obtain a loan using your house as collateral. The loan typically comes in either a lump sum or a line of credit and can be used however the homeowner chooses. Taking out a second mortgage on a home is a common option for homeowners who need some extra money to put towards other objectives.

If you have built up equity in your home through monthly mortgage payments or your house is increased in value, you may be eligible to take out a second mortgage on your home. Below are reasons why this is an attractive option.

1. Quicker process

Whether you have an emergency and need money fast or you are impatient regarding doing some home renovations, applying for a second mortgage may be the best option for you. The application process is a lot faster because you are borrowing against your own home- something you already own.

There is a lot less paperwork and documentation to take care of and usually only requires a copy of your mortgage statement, proof of employment, and identification. Since these documents are easily attainable, you will be able to complete the deal and you will be afforded access to the funds of the loan in little time at all.

2. Interest rates

Second mortgages are appealing to homeowners because compared to other options such as personal loans or lines of credit, the interest rates are lower. While the interest rate on a second mortgage will not be as low as your original mortgage, you will more than likely be able to secure one that you will be happy with. This will guarantee that monthly payments that you make are going towards the principle amount of the loan and not largely towards the interest.

Since these interest rates are lower, people who obtain this type of loan often consolidate debts from other lenders with higher rates into their second mortgage, leading to lower and singular monthly payments.

3. Larger loans

Because the loan is secured against your home, lenders are more willing to give second mortgages because they have greater security with your home being used as collateral. Depending on the lender, you are usually able to borrow up to 80 percent of the value of the home which is significantly more than you would be approved for with another type of loan or a credit card. This type of loan will allow you to make bigger purchases of things you need or achieve bigger goals with the use of a more sizeable loan at a low interest rate.

4. Flexibility

Second mortgages are flexible and allow you to use the funds for anything you deem necessary. A large majority of people use their loans for home improvements, real estate, tuition, or debt consolidation. Second mortgages also allow you to choose one of two options regarding how you can access the loan. A lump-sum is a one-time loan that you receive and you are required to make monthly payments on it. A line of credit acts like a credit card where you can draw from the account as needed until you reach the maximum limit.

Interest is only paid on what you use and you can repay and borrow again if needed. The loan also has two basic choices in terms of interest rates. A fixed interest rate means that the interest rate will remain constant meaning you can better plan payments knowing exactly what the amount will be. Variable interest rates change at the requests of a lender meaning they could be raised or lowered at any time.

Sometimes, lenders dictate whether your interest rate will be fixed or variable, but you will definitely have a say in which one will work best for you.