In times of financial uncertainty, you need to be aware of all your available options. Credit cards may seem to offer some short term relief, but any financially prudent person will tell you that they’ll only get you deeper into debt in the long run. Payday loans are even worse, charging exorbitant amounts of interest for a short term non-secured loan. If you’re in need of a significant amount of cash, your best bet is to work with a bank or financial institution, as these provide the best security and the most flexible terms. Personal loans are ideal when you’re in need of small amounts of money, but for situations when you’re in need of significant amounts of cash, your best bet is a second mortgage.
A second mortgage is a secured loan that uses an already mortgaged property as its collateral. Using your home or a property as collateral will guarantee that you’ll be able to borrow a larger amount of cash than possible through other means. And since you’re dealing with a bank or some other established financial institution, you will have some flexibility with negotiating the repayment terms of your second mortgage. Financial institutions are also more inclined to clear second mortgages than other types of loans. Because the loan is secured with some collateral of significant value, they view them largely as good long term investments. There are also a few different types of second mortgages that you can apply for. The first is a straight out loan with a single large payout that must be paid out over a fixed time period under an agreed upon set of conditions. The second type of second mortgage is a line of credit, in which the borrower isn’t given a large cash disbursement immediately, but is allowed to borrow smaller amounts of money several times using the property to secure the loan.
Since the second mortgage is subordinate to the first, it will have a higher interest rate. This is because the lender’s risk is much higher, since the first mortgage will be paid off first should the borrower default. Just how much higher the interest rate will be is going to depend on several key factors that the bank will consider before granting you your second mortgage. These factors include how much equity you have in your first mortgage loan, your debt to income ratio, your credit history, and your employment history. What you’ll use your second mortgage for can also be a factor in getting you the best possible deal. If you’re using the money to help fund an investment or a business, then banks may be more willing to hand out flexible terms than if it were to be used for a vacation or the treatment of an illness.
When taking out a second mortgage on a property, it is best to lay out all your options. Shop your property around different banks in order to get the best deal. Have an idea what your property is worth via an appraisal or a market evaluation. This will give you a rough idea of how much you should be getting. Do business with a bank or lender that you can trust. Some unscrupulous institutions may try to reel you in with a seemingly good deal, and then lock you in under less than favorable terms. Be aware of any second mortgage fees or default penalties that the bank may try to lay on you, both up front and when the mortgage is paid off there may be a discharge fee. These could end up making the repayment of your second mortgage next to impossible, and place you in even greater debt. Some mortgages may seem affordable at first, but could end up having huge payments due towards the end. Such plans are called balloon payments, and these can sneak up on unwary homeowners who neglect to read the fine print. Finding a good mortgage broker may help to find you the better deal.