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Second mortgages are secured loans and the borrower uses their house as security. Most people use this method when they need money for a project since it is easier than remortgaging. But, there are several things you need to understand before applying for the loan. Find out more about second mortgages and what it entails.
How Does A Second Mortgage Work?
For you to qualify for a second mortgage, you need to be a homeowner. The second mortgage is charged on a property that already has another mortgage on it. You do not have to be living in the property for you to apply. You can apply even if the property is rented or not in use. But, it is important to note that the second mortgage is like any other mortgage if you do not pay the loan, you could lose your home.
The mortgages are ranked in the order they were lodged. If you fail to make the payment your property will be sold. The first mortgage is paid back before any other money is used to pay the second mortgage.
How Can One Get A Second Mortgage?
In most cases, homeowners will prefer to refinance their loan to another lender over getting a second mortgage. But there are some situations where getting a second loan is ideal and if so, here is what you need to understand about the loans.
Fixed-rate
In case your mortgage is a fixed-rate loan you might feel that the fees attached to it are high. If so, you might want to refinance it to get a much lower rate than what you are already paying. If so, you might have to borrow more cash using a second mortgage.
Guarantor Support
Another reason you might want to get a second mortgage is to help someone who is buying a new home. This is in most cases allowed when a parent wants to help their child. The second mortgage can be used as a loan to help in financing the new property.
Private Loan Lenders
Many of the private lenders can advance funds to you within a short time. They will take a second mortgage that is behind an established bank as security. Most of the private lenders in Australia will negotiate better interest rates within a short repayment period.
How Much Money Can You Borrow?
The private loan lenders Australia will restrict your loan to value ratio to between 60%-80% of the value of your property. But, you cannot get a loan from any banks or private lenders unless the lender of your first mortgage has given consent.
In very rare cases the first mortgage will stop you from getting a second loan, but they will ask for some amount of fees for assessing your request.
When you choose to get a private loan as your second mortgage, it might help you get better rates. Since the private lenders will offer you an opportunity to refinance, they will lessen the cost that comes with financing the money. The private lenders are likely to negotiate a better deal for you compared to traditional financing.
Pros
- Quick access to cash at an affordable rate
- Since homes increase in value the loan in most cases replenishes itself
- Easy to apply
- Can be used when you are in a financial fixed
- Private lenders will offer the cash within 48 hours
- Low-interest rates compared to unsecured loans
- Get more yeast to pay the loan
- Interest rates are tax-deductible
Cons
- With the low-interest rates, you might be tempted to keep borrowing
- You will be putting up your home as collateral
- Risk foreclosure
- House might decline in value
Should I Apply For A Second Mortgage?
In case you have a major project and are looking for a low-interest to finance your expenses consider getting a second home mortgage. Before doing this, ensure that you understand the potential implications involved when you take out the loan.
It is also important for you to choose the right finance company to use. You can check out online platforms like ADS.finance where you can find a listing of banks, brokers and private lenders in Australia. Before choosing private lenders Australia service, take the time to read and understand their terms and conditions so that you can choose a company that will offer you the loan at affordable rates. Avoid companies that have a high-interest rate and terms that are not friendly.
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