When you decide to purchase real estate, you'll apply for and agree to a mortgage or home loan in order to help you pay for it. However, before you pay off your first mortgage, other events may occur in your life that require more money than you currently have to spare. If you have medical bills, tuition payments, home improvement projects, or other important expenses, you may look to second mortgage to help pay for the costs.
A second mortgage is a mortgage just like your first one, except that it is usually secondary to your first one. This means that if a loan defaults, the second mortgage will only get paid off after the first mortgage or home loan is. Second mortgages are frequently home equity loans that use the value of the home minus the amount still owed on it to give the homeowner money towards expenses, such as home improvements and college tuition. Second mortgages are common these days. Using the value of your home to turn it into cash is a great way to cover expenses you normally wouldn't be able to afford.
Getting a 2nd mortgage can be difficult if you have bad credit, because you now have two loans to pay off. Lenders and mortgage companies may charge a much higher interest rate or mortgage rate for your secondary mortgage because second mortgages and home equity loans can be a higher risk for them. This is just one of the reasons why it's important to shop around to receive the best mortgage quote you can. Mortgage quotes are a great way to see what is available to you with different lenders or mortgage companies. Without a quote, you'll end up accepting the first second mortgage rate you're offered and it could be the most costly.
Many second mortgages offer two different ways to accept the money from the loan. One, the open end loan, offers you a line of credit where you can draw money as you need it. The other, closed end loans, give you the money upfront. For your second mortgage, you can get either a fixed rate mortgage or an adjustable rate mortgage, but it's important to discuss which is a better fit for your financial situation with your lender or mortgage company. You'll also have to discuss with your lender whether you'll need mortgage insurance to be sure the loan will be paid off, and whether it will be wise to refinance your second mortgage later on. Discuss this and all aspects of this important decision thoroughly before deciding to take on a second mortgage.