What is a Second Mortgage?
A second mortgage is taking out a second loan on top of the existing mortgage on your home. The collateral for the second mortgage is your home. The loan process is similar to getting a primary mortgage, including the need to pay for appraisals and closing costs.
The maximum amount of the second mortgage is determined by the equity in your home. The equity is the difference between what you owe on the home and the current fair market value of your home.
Why Get a Second Mortgage?
People take out second mortgages on their Brooklyn homes to:
- Finance home improvements
- Consolidate other debt for a lower monthly payment
- Pay for college tuition
- Invest in a business
- Pay medical bills
- Avoid paying for Private Mortgage Insurance
What Should I Consider Before Getting a Second Mortgage?
Taking out a second mortgage is a big risk because your home is your collateral on the loan. Second mortgages on Brooklyn homes are riskier for the lender, so they usually have a much higher interest rate than your first mortgage.
According to an article in the Wall Street Journal, almost 40% of homeowners who took out second mortgages are underwater on their loans. This is more than twice the rate of owners who didn’t take out second mortgages.
Make sure that you can afford the monthly payments as well as the costs associated with getting a second mortgage including the appraisal fee, closing costs, etc. Before signing on the dotted line, investigate financially safer alternatives such as refinancing, selling or renting out.
If you’re considering getting a second mortgage, please think it through very carefully and weigh all your options before making a final decision.
If you’d like help determining if refinancing, selling or renting out your home is the best option for you, give me a call Charles D’Alessandro Your Brooklyn real estate agent with Fillmore Real Estate at 718/253-9600 ext 206 or email me at [email protected],