A second mortgage (often called a 2nd mortgage), is an additional loan while the first mortage is still in effect. The requirements for second mortgages are less strict than a refinance or home equity line of credit, but the rate is generally higher because of the increased risk.
Similar to refinancing and HELOCs, a 2nd mortgage leverages your home equity. If the homeowner defaults, the original mortgage will receive liquidation priority until it's completely paid back. Once the first mortgage is paid, the second mortgage will receive the remaining proceeds, if any.
People use second mortgages as a short-term financing solution, often because they don't qualify for a home equity LOC or refinance. Some examples include:
While the interest rates are higher with second mortgages than refinances and HELOCs, it's a good option for consolidating high-interest loans such as: credit cards, car loans and other high interest debt.
If you have significantly more equity and higher credit than the aforementioned numbers then you might be better off with a home equity line of credit. Generally, private mortgage lenders will have lower interest rates than trust companies, but both are much higher than HELOCs.
Interest rates can be fixed or variable, and payment is similar to a cash-out refinance: One lump sum deposited into your bank account.
Mortgage brokers are a good source for lenders. Most banks don’t offer second mortgages because of the additional risk. Brokers have access to many different lenders that offer 2nd mortgages.
Lenders that offer second mortgages: mortgage trust companies and many private lenders e.g. Home Trust, Tridac Mortgage Corporation, etc. Keep in mind that most big banks don’t offer 2nd mortgages because of the added risk
Brokers like (Breezeful) has access to 30+ lenders to help you get a second mortgage. You can learn more about us here.
Included costs of a second mortgage:
To calculate how much you can get from a second mortgage: take 80% of the home's appraised value and subtract the unpaid balance of the first mortgage.
e.g. if the home is valued at $700,000, 80% of that would be $560,000. If the remaining balance on the existing mortgage is $240,000. You would qualify for $560,000 - $240,000 = $320,000.
You can try out our quick calculator below:
You can get $0.00 from a second mortgage.
Of course, the above assumes your credit is good, you have enough home equity and have proof of bill payments. You can apply below to find out how much you can actually get from a second mortgage.
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