Should I Consider a Second Mortgage?
There are a variety of reasons to consider a second mortgage. Second mortgages are used to consolidate debit, fund home improvements or cover other costs. These costs include medical bills or the costs associated with a wedding or vacation.
What is it?
A second mortgage, also known as a home equity loan, is an additional mortgage that you take out against your current one. You can do this through using the equity of your home. This is taking the value of your home minus your first mortgage balance.
You can apply for a second mortgage with the financial institution that holds your current mortgage or decide to go through a different lender. You will still have two separate mortgage payments, interest rates, and loan terms. Whoever you apply with, it is important to show the lender that you have been able to keep up with your first mortgage through the life of the loan.
Types Home Equity Loans
Although these types of mortgages are similar sounding. They each have features that make them unique.
Home Equity Line of Credit (HELOC)
Home Equity Line of Credit or HELOC is a second mortgage that you can obtain through many lenders. When you apply for a HELOC, the lender will look at how much equity your home has available. There are also other factors that are considered for qualification of a HELOC. Factors like your credit score, current debt that you hold, monthly expenses, and payment history of past and current loans. This will help the lender decide whether to approve you to receive a loan from them. If you are approved, it is possible for you to receive up to 100% of your home’s equity in a loan. Once the loan amount is set, you are able to choose to receive all the money. Or you can receive small increments and draw from your HELOC when needed.
It is important to remember that you only have a set number of years to take out the maximum loan amount. Many use HELOC’s to make improvements to their home in hopes of raising the value of it.
When deciding if a HELOC is right for you, keep in mind that most HELOC’s have variable interest rates, so your monthly interest amount paid can be unpredictable. For more information on HELOC’s from GCU and how to apply view our page.
Home Equity Loans
Home Equity Loans are similar to HELOC’s and use the equity in your home for the loan. A few main differences between the two loans are that the Home Equity Loans have a fixed or set rate for the term of the loan. You also will receive all of the funds at one time instead of draws. For more information on Home Equity Loans and how they can help you financially, read this article from Investopedia.
Deciding to take out a second mortgage is a big decision that requires lots of planning and discussion. If this is the right next step in your financial journey there are many resources that are there to help you with this process. Talking with a loan officer can be helpful too!