Choose smartly how you use money from your loan. It is best to put that funds toward something which will enhance your net worth (or the value of your home) in the near future. As a matter of fact, you will still have to repay these loans, they cost a significant amount of money, and they are very risky.
House improvements are a very common option since the assumption is that you will repay the loan when the house is sold with a greater sales cost.
Avoiding private mortgage insurance may be possible with a combo of loans. For instance, a piggyback or an 80/20 strategy loan uses second mortgage in order to maintain your loan-to-value ratio beyond 80% on your first loan. You just have to make sure that it makes sense than paying – then canceling – the private mortgage insurance.
You may be setting yourself up for a greater salary however, as with other cases, you are making an instance where you could come up with foreclosing your property.
You can usually get a smaller rate with the second mortgage however, you may be switching from unprotected loans to a loan which could cost you your home.
Tips for Taking on a Second Mortgage
You shop around and get bills from 3 different sources. You just have to be sure to involve the following in the search:
- A credit union or local bank
- An online lender
- A loan originator or mortgage broker (ask your agent for recommendations)
Be prepared for the procedure by getting cash in the appropriate places as well as preparing your documents on hand. This will actually speed up the procedure, and make it less stressful and much easier.
Beware of loan features that are risky. Most of the loans don’t have these issues however, it is worth keeping your eye out for them:
- Prepayment penalties which wipe out the advantages of paying off your credit early
- Balloon payments which will cause issues down the road.
Disadvantages of a Second Mortgage
Benefits are always present with tradeoffs. The risks and costs mean that the loans should be used smartly as much as possible.
Risk of Foreclosure
The biggest problem with getting a second mortgage is, you have to make your home as a collateral. If you stop paying your monthly dues, the lender will have to take your house by foreclosure that can cause real problems not just for you but also, for your family.
A second mortgage such as your purchase loan, may be very expensive. You will need to pay several costs for things like original fees, appraisals, credit checks and many more.
Lastly, when you refinance the mortgage on your home you are obtaining an entirely new mortgage on your home. This means that you will have to go through the entire process of getting a mortgage loan like you did when you originally purchased your home. You will have to supply the lender with your personal information, employment information, financial information, and more. To know more about second mortgage rates Ontario, make sure that you contact a professional.