Are you preparing to pay for your child’s education, take a well-deserved vacation, remodel your home or just want to pay off high-interest date? Getting a second mortgage gives you the cash you need to make it happen. Here’s how a second mortgage works.
When you purchased your home, you probably got a mortgage to help pay for it. Over time, you’ve made monthly payments to pay down the balance, so you owe less on the mortgage debt and own more of the “value” of your home. This means you have increased your equity – the difference between the amount you owe on the mortgage and the value of your home.
A second mortgage is a second loan on your property, and just like a first mortgage, it uses your home as collateral. You get cash at the time of the loan closing in one lump sum. The amount of the second mortgage is determined by the amount of equity you have in your home. The more equity, the more you may be eligible to borrow.
Use Funds to Pay For a Variety of Expenses.
Auto loans have to be used to pay for a car. Student loans have to be used to pay for education expenses. On the other hand, you can use the cash infusion from a second mortgage to pay for just about anything. Pay for that dream vacation or to upgrade your kitchen. Some people use the funds to purchase a rental property, which can generate cash flow from rent payments that can be used to make second mortgage repayments – and provide you with more income, too.
Using the funds to pay for education can be a smart move, too. You could pay for your child’s college tuition, or tuition for yourself to get an advanced degree that can
lead to a higher paying job.
Another popular use of second mortgage funds is to pay off credit card debt. That’s because the interest rate on a second mortgage is usually lower than credit card interest rates. Paying off your credit card outstanding balance could save you a lot of money.
Repaying a Second Mortgage.
Just like a first mortgage, you make monthly payments of principal and interest on a second mortgage. The interest rate is usually fixed so you can budget the
amount you owe each month. But remember, you will have to make payments on both your first and second mortgage, so it’s important to review your finances. Since
your home is used as collateral to secure the loan, if you don’t make payments on time, you could lose your home.
The Bottom Line.
A second mortgage uses your home as collateral to pay you a lump sum of cash at loan closing that you use to pay off debts or large upcoming expenses. Monthly
payments are fixed, so you can plan ahead. Plus, the interest rate on a second mortgage is usually lower than the interest rate charged on credit card debt.
Benworth is a licensed lender for second mortgages up to $25,000 on residential properties located in Florida, with no application fee and repayment terms up to five
years. Even if you have a less than perfect credit score, qualifying is easy and funding is fast. Click here to learn more.