So, you have your mortgage on your house or your flat and you are looking out to get a second mortgage loan. Maybe you are not sure about the decision, and you need a few more facts to help you make the final call. Then you need look no further, this article is here to help you with this, with the intention of getting rid of any doubts that you may still have, and providing you with the information you will need to know how to go forth if you decide to do so. See more!
What is a mortgage?
Before we start thinking about taking out a second mortgage we must first clarify what is a mortgage. A mortgage is a legal agreement taken out between a bank and a purchasers in order to raise funds to buy real estate. This means that during the time that the mortgage is being paid off that the property is officially in the name of the bank. By taking out a loan you are taking out a lump sum of money, and so you need to come to an agreement with the bank as to how much you will pay per month in order to pay them back, with interest added on top of this.
Things to consider when taking out a second mortgage
When taking out a second mortgage we must take into account that banks like to have security when giving out their money. This means that if you fail to pay back what you owe to them then they have a way to recuperate their losses. However, with a second mortgage a bank can only take back what you are buying using their money, they cannot take anything else. This makes it more difficult to get a second mortgage as the bank is already aware that you are paying off one, and that affects your ability to pay off a second one thus making them more reluctant to give you a second mortgage. Also, because the second mortgage will only receive their payment once the first mortgage has received theirs, the interest rates are more likely to be higher. Check out this site: https://www.investopedia.com/articles/personal-finance/041415/how-combine-two-mortgages-one.asp#combining-mortgages
What do you need to get a second mortgage
With second mortgage loans come stricter financial checks, and due to this you will need to present evidence that you earn enough to be able to pay off both at the same time. In order to improve your chances to get a second mortgage it is recommended to cut down on any excess spending as much as you can. You also need to think very seriously in what your intentions for the second home are. Do you plan to live there and rent out your first home? Or do you plan to use it as a holiday home? This needs to be very clear before applying for the second mortgage, as this could affect the application.
In conclusion, although the process to get a second mortgage is very similar to the first, it also slightly more difficult as the bank is increasing the risk that you won’t be able to pay them back. So when applying for a second mortgage loan be prepared for a long wait as they review your case, and hopefully they approve it.