5 Common Uses Of A Second Mortgage



As a property owner who purchased a home on a mortgage, you may find yourself in a difficult financial position every now and then. Fortunately, you can consider a second mortgage when an urgent need arises and you can’t think of other ways to fund that particular obligation or emergency.

Tapping into your home’s equity may be a good idea if you want to take care of urgent and significant expenses. And you can use the proceeds to address various needs, as discussed below. However, it’s vital for you to understand what a second mortgage is before getting one.

How Does A Second Mortgage Work?

A second mortgage is a form of a secured loan where your real estate asset is used as collateral for your initial mortgage. Before choosing this option, it’s crucial to note that a second mortgage means you’re taking out a lien against your home. This means you’ll lose your property in favor of the lender if you default on your second mortgage.

If you’ve built a considerable amount of equity in your property, you can take a portion of the amount you’ve already paid to finance any pressing need for cash. The amount you can borrow is limited to the equity you’ve put in, which is calculated by subtracting the outstanding debt from the property’s current value.

While second mortgage lenders typically offer higher interest rates than your initial loan, those rates are often relatively lower than credit card interest fees. However, different lenders offer various mortgage products, so it’s best to get in touch with a reliable one in your area. For instance, if you’re in Toronto, you can contact CMB – Second Mortgage Toronto to find out how they’ll be able to help you.

5 Ways To Use A Second Mortgage

Like most forms of cash loans, there’s no limit to what you can do with the money from your second mortgage. However, it’s critical to practice prudence in spending given that your property is on the line. If you’re not careful with your loan proceeds, you and your family can end up losing the home you’ve worked so hard to get.

Below are the most sensible uses for a second mortgage.

     1.     To Carry Out Major Home Repairs And Renovations

If your home is in a pretty bad condition and urgently requires repairs to restore its structural integrity, you’re going to need a substantial amount of cash. A new roof, a replacement for your heating and cooling systems, and any significant home repair can cost you several thousands of dollars.

The same holds for home rehab projects, whether you’re after a kitchen or a bathroom upgrade. Besides keeping your family safe, another good thing about fixing or renovating a home is that you’ll help increase its market price. As mentioned by Mortgageable, The key is choosing home renovations that add value to your property, such as garage door replacement and installing stone veneers, which can yield over 90% in investment returns.

     2.     To Consolidate Debts

If you’ve racked up numerous debts that carry high interest rates, it’s a good idea to pay them off with the proceeds from your second mortgage. Doing this can save you money being that you only have to pay a single loan with considerably lower interest rates compared to previous debts that were also from multiple sources.

     3.     To Pay Off Credit Card Debts

Paying over 30% in annual percentage rate (APR) on your current credit card translates to heavy losses. A second mortgage can help you get out of debt faster by enabling you to pay both your outstanding credit card bills and your second mortgage loan, which often carries less than 5% APR. Of course, you’d have to stop using your credit card or use it more judiciously.

     4.     To Expand Your Business

Whether you’re planning to buy new business equipment or expanding your inventory, a second mortgage may be the best way to finance your business operations. Small businesses are often at a disadvantage when applying for a business loan, especially if they don’t have a credit history. However, make sure that you don’t use the funds to salvage a failing company as you run the risk of losing your home, too.

     5.     To Pay Medical Bills

According to a survey, more than half of the American population carries at least USD$1,000 in medical debt because of the prohibitive costs of health care and the coronavirus. These costs include hospital admissions, diagnostic tests, and visits to the emergency room.

Suppose you’re suffering from a severe health problem and scheduled to undergo surgery or any other medical procedure. In that case, it’s best to prepare for the worst by taking out a second mortgage. Doing so can prevent you from incurring high-interest debts later on.

Wrap Up

Homeowners pressed for cash may consider getting a second mortgage to pay off necessary big-ticket expenses. Besides addressing your urgent financial needs, taking this route may also save you from paying high-interest loan rates.

It’s important to note that getting a second mortgage puts your property at risk, so borrowers should avoid misspending second mortgage loan proceeds. Finally, make sure to repay diligently to avoid hefty penalty fees.

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