Second Mortgage: What Does it Mean?
If you’re having trouble paying for your child’s tuition or coming up with the money to renovate your home, you may benefit from taking out a second mortgage. Below, you’ll find information that can help you better understand what this financial transaction is and what it can mean for your home.
- What is a Second Mortgage?
A second mortgage is an additional loan that is paired with your original home mortgage. Taking out a second mortgage can help you acquire more equity in your home, which is why many homeowners apply for one. When you take out a home loan, the lender files a lien against the home, allowing for its repossession of the home if you cease making payments. When you take out a second mortgage, another lien is filed, ensuring that the other lender receives proceeds from the sale of your home should you default on the loan.
- What Type of Second Mortgage is Right for You?
There are two types of second mortgages: home equity loans and lines of credit. If you opt for a home equity loan, you’ll receive a lump sum that you’ll be required to pay back over a fixed period of time. If you opt for a home equity line of credit, your second mortgage will function like a credit card, where you’ll have a limit that can be reused as you pay down the balance each month. The amount of money you can receive from both types of second mortgages is determined by the amount of equity in your home, which represents the difference between the amount you owe on your original mortgage and what your home is worth.
- What Should You Consider Before Taking out a Second Mortgage?
Before deciding to take out a second mortgage, you’ll need to consider the financial implications and your other options. Refinancing your original loan might be a safer option, but only your lender or bank can say for sure.
If you would like to know whether taking out a second mortgage is right for you, contact Pioneer West Acceptance Corp. We employ Canada’s leading mortgage brokers and provide affordable mortgage options, so call us at (604) 987-1420 to learn more.
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