Second Mortgages

If you thought taking out one mortgage was bad enough and you’re thinking about taking out a second, don’t worry! Taking out a second mortgage is in fact surprisingly easy. A second mortgage is an increasingly popular way for home owners to take advantage of the untapped equity in their homes. And the more popular second mortgages get, the easier they get to set up and maintain. Hard as it might be to imagine now, you’ll hardly notice the difference when you’re paying two mortgages instead of one.

First let’s clarify: a second mortgage (sometimes called a secured loan; sometimes called a home equity loan) is an additional mortgage on a pre-mortgaged property. It means your mortgaged property will carry two separate mortgages. There is no inter-relationship between the mortgages at all. They can be (and often are) taken out with completely different lenders – and the terms and conditions will also be entirely different.

The interest charged on your second mortgage will undoubtedly be higher than that charged on your first mortgage. Lenders argue that second mortgage borrowers constitute a greater risk – and that the only way they can mitigate against that risk is by raising the level of interest on the repayments. Nevertheless, it should still be possible for you to secure a very affordable rate. That is one of the big advantages of the increasingly competitive second mortgage market. And when you factor in the persuasive powers of brokers and the benefits of shopping for a second mortgage online, you’ll see there are plenty of ways to score a second mortgage at what is virtually a first mortgage price.

So why take out a second mortgage anyway? Probably because it frees up a portion of the money that you’ve already invested in you property, whenever you need it most. A second mortgage can be based on any figure up to 125% of the value of your property, giving you access to as much (or as little) additional cash as you need. It might be for something as simple as renovation or redecoration. Sprucing up your home, whether for the purposes of selling, or just for the intrinsic value it adds to your life is one way of investing the money from your second mortgage pay out straight back into your home. Alternatively, it might be to cater for unexpected expenditure. Domestic emergencies aren’t all covered by your insurance premiums after all!

It isn’t always an easy decision to take out a second mortgage or release some of the equity in your home, no matter how pressing the reason. But because it’s not the big deal it once was, taking out a second mortgage can reap its own dividends. Improving your house improves its market value. That makes it a long term investment. Catering for crises without having to resort to higher interest bank loan charges might save you money, and it will certainly save some heartache knowing that whatever happens, you’ll have it covered. It can even make good financial sense to utilise a second mortgage to pay off existing debts – particularly if they would otherwise be charged at a higher rate of interest. Check out the rates involved and find out for yourself. And remember, as with any other kind of mortgage; if you’re unsure about any single aspect of the repayment plan, the conditions or the costs, just ask. You’ll get all the help you need.

There are of course alternatives to second mortgages. You might consider the value of an offset mortgage; you might even be able to radically revise the terms of your existing mortgage. And if you’re just staring out and you’re short of cash, you might even want to think about obtaining a 100% mortgage or an interest only mortgage in the short term.

But the important thing is not to be afraid of the second mortgage. It’s a legitimate, cost effective way in which to get back some of the value of your house here and now – letting you take care of the here and now.