The mortgage is a versatile financial product, besides property buying, it fulfils some other needs too. This is the reason that the concept of the second mortgage took birth. However, due to a weak grip on the purpose and concept, most of the borrowers get confused. They do not know how things work.
Here is detailed information about the second mortgage and the conditions involved to describe the concept better.
What is a second mortgage?
The second mortgage is a secured loan that allows you to borrow extra funds on the existing mortgage. However, it has its separate existence as the borrower pays a different interest on the borrowed money. Most borrowers take it as a better alternative to remortgage.
Why people take a second mortgage?
Until you do not know the purpose of something, you do not know its uses. The second mortgage solves some goals. Know about them. You may need to take the one in the future.
- To borrow funds for any short-term purpose such as home renovation, medical expenses, educational expenses, etc. Those who failed to qualify for a short-term or personal loan use the method of the second mortgage. It is easier because the lender has the house of the borrower as the security.
- When a borrower fails to remortgage due to weaker creditworthiness, the second mortgage can solve the same purpose with a much shorter length of the loan procedure. It saves time and hard-work and offers financial convenience in a shorter time.
- The early repayment charge for a remortgage on the existing deal is quite high. As a result, the second mortgage option sounds better, which may have a lower cost on the total interest rate of the borrowed money.
Preconditions of applying for a second mortgage
- Take professional advice before you make the final decision. If you took your mortgage from a broker, it could always suggest you the best way. A financial advisor can still be of great use to help you make a decisive difference in the current situation of confusion.
- There should be no red flags of missed repayments or default on your credit report. The lender is sure to check your affordability for the funds you are planning to borrow. If there are any such issues, it is better first to fix them and then apply for the second mortgage.
- Compare the available rates and lenders as you may not be ready to consider your existing mortgage lender. Shop around for the best deal and the rate in harmony to your affordability. Online brokers can solve this purpose smoothly and instantly.
Pros and cons of the second mortgage
Every financial product has its pros and cons, and if you know them, it becomes possible to make rational decisions. Usually, the second mortgage is exploited for a short-term or urgent reason; at that time, mistakes may happen. It is better to understand the positive and negative effects in advance and avoid a regretful decision later.
|Pros of second mortgage||Cons of second mortgage|
|You can use it as a tool if you fail to get an unsecured loan. It is available irrespective of the purpose.||Through the second mortgage, you turn an unsecured loan need to a secured one taking the obligation for a more extended period.|
|It offers funds on a lower rate and smaller installments.||You may not be able to manage the added burden of the repayments and may lose your home.|
|It is a better alternative to remortgage, which may have a higher prepayment charge.||It may be more expensive than a remortgage as the second mortgage is an entirely different product.|
The above details show the varied aspects of the second mortgage and their significance as a mortgage product. If you are planning to apply for it, make sure to recall the information while making the decision.