Second Mortgages — What is it and How it works?

Applying for second mortgage can be easier than you think, second mortgage lenders are looking for several things when it comes to lending you a second mortgage.

First and foremost an appraisal needs to be completed on the property, this will give them the value that they need to work with to determine how much money can be lent against the property. Second mortgages can go up to 85% of the value of the property and in some exceptional situations it may be 85% of the value.

If your current mortgage is $100,000 and the appraisal come in at $200,000 you would have another $50,000 that might be lent against your property bringing the total mortgage to $150,000 dollars or 75% of the value. The amount would be less any fees charged by the lender and any fees charged by the mortgage broker. So you can expect that part of the proceeds will go to cover the expense of getting the money.

Second mortgage rates will vary depending on the lender and how your credit score looks, the lower your credit score the higher the risk for the lender. Then most likely a higher rate will be applied to the second mortgage.

The best way to explain a second mortgage is that while you have an original mortgage on your property a lender may place a second mortgage on your property which if there is a default or a foreclosure happens then a lender with a second mortgage must pay out the first to collect their money. This is where the risk lies for the second mortgage holder in that he must have reserves to pay out a bigger mortgage should this scenario occur. This is also why the second mortgage interest rate will also be higher.

Second mortgages have their place in helping secure equity that is in a property for use in business, debt consolidation or repair or quite simply needing money for an emergency. At Brokers for Life we are always looking at ways to help the client move from having two mortgages back to having one mortgage again. We believe that a second mortgage is the means to getting you through a tough spot to coming out the other side in better financial shape than when we started this process with you.

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