Many people use a second mortgage to generate much needed funds. It is just a loan on property owned by you. However in case you default on payments your first mortgage would have legal preference on receiving payment than the second mortgage.
Usually a second mortgage is used for home improvements, to avoid private mortgage insurance, for debt consolidation programs, or for purchasing an additional home. Although a second mortgage can serve to bail you out of a situation you are risking the most important investment in life, your home. A second mortgage could land you in a debt trap. And, as the loan has a risk element for the lender the interest rates are normally higher than a plain-vanilla mortgage but much lower than a credit card loan or personal loan.
If you need a second mortgage it will be easiest to obtain it from the bank, credit union, or institution you are already with. The other alternative is to source it from the same lender who has given you your primary mortgage. However, when you avail of a second mortgage, the fees charged for appraisal, application and other services, as well as closing costs are much higher.
Be financially astute. Don’t take the first second mortgage rate offered. Make an effort to do a comparison of rates offered by one bank, one credit union, and one or two lenders. Avoid what are known as default penalties in the agreement, even a clerical error could result in the rate rising rather steeply. Ensure that there is no “lock in” period and the mortgage is not bundled together with a voluntary insurance policy. It is crucial for you not to rush through availing a second mortgage and take the time off to read the contract properly and scan the market for a suitable rate.
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