Everything You Need to Know About Getting a Second Mortgage to Buy Another Property
If you're a homeowner, you may be able to get a second mortgage to buy another property. But there are a few things to consider before you apply for a second mortgage.
In this article, we'll discuss:
• What is a second mortgage?
• How much can you borrow with a second mortgage?
• What are the interest rates for a second mortgage?
• How do you qualify for a second mortgage?
• What are the risks of taking out a second mortgage?
A second mortgage is a loan that's secured by your home. Just like your first mortgage, your second mortgage will have closing costs and fees. And, if you have a low credit score, you may have to pay a higher interest rate on your second mortgage.
The amount you can borrow with a second mortgage will depend on the value of your home and your first mortgage balance. Typically, you can borrow up to 80% of your home's value minus your first mortgage balance. So, if your home is worth $100,000 and you have a $60,000 first mortgage, you could borrow up to $20,000 with a second mortgage.
Interest rates on second mortgages are usually higher than rates on first mortgages. That's because your home is used as collateral for your second mortgage, so it's riskier for the lender. The average interest rate for a 30-year fixed-rate second mortgage was 4.96% in 2019, according to Freddie Mac.
To qualify for a second mortgage, you'll need to have equity in your home. Equity is the portion of your home's value that you own outright. So, if your home is worth $100,000 and you have a $60,000 first mortgage, you have $40,000 in equity.
You'll also need to have a good credit score to qualify for a second mortgage. The higher your credit score, the better your chances of getting approved for a second mortgage.
Taking out a second mortgage is a big decision. Not only will it add to your monthly expenses, but it also puts your home at risk if you can't make the payments. Before you take out a second mortgage, make sure you understand the risks and speak with a financial advisor to see if it's the right decision for you.