If you’re like most people, you financed the purchase of your house with a home loan. As you pay down that loan, you start to build equity in your home. While you can always cash that equity out when you sell the house, you can also use it to help you cover expenses through a second mortgage. Second mortgage loans are similar to conventional mortgages, but they work in different ways. These are a few of the most common questions prospective borrowers have about these loans.
Is a Second Mortgage a New Loan?
Yes. When you apply for second mortgage loans, you’re taking out an entirely new loan. This loan is in addition to your original mortgage and doesn’t mean you get to stop repaying your original home loan.
Is It Similar to Refinancing a Home Loan?
No. Refinancing involves renegotiating the terms of your primary mortgage loan to take advantage of new, lower interest rates or more favorable loan terms. When you refinance, you’re swapping out your original mortgage for a new loan, not taking out an additional loan on top of the original mortgage.
How Does It Work?
Second mortgage loans allow you to borrow money against the equity you built in your house without having to sell the property. Banks and lenders look at the current value of your property and how much you’ve paid off on the original loan before issuing you a second mortgage for a specific amount.
How Can I Use the Loan?
With second mortgage loans, there are not use restrictions for the money you receive. If you need to take the loan out to cover unexpected bills and expense, you’re free to do so. The only requirement is that you make payments on time for both the second mortgage and your original loan.
What Happens If I Default?
When you default on your second mortgage, the lender may be able to take possession of your home. Remember, you’re borrowing the equity you built in your house. You won’t regain that equity until you pay off the second mortgage.
Is a Second Mortgage Right for You?
Second mortgage loans aren’t right for every homeowner. If you’re interested in seeing if this type of loan will help you regain financial control or cover unexpected expenses, contact us today. We’ll help you find the right loan for your needs, whether you’re looking to refinance or are ready for a second mortgage.