If your financial circumstances change or if you need additional funds for a major expense, it might be time for a 2nd mortgage.
As the name implies, a second mortgage is subordinate to the first, which means that if the first mortgage should go into default, it would be paid off before the second mortgage.
As a consequence of this subordination, second mortgages are riskier for lenders and they often come with higher interest rates.
A second mortgage is different from a mortgage refinance situation. In the former, you are not replacing your first loan, although the mortgage is secured against the same assets as the first. The second mortgage is based on the amount of equity that the property has built up over time home equity being the difference between the value of the property and the amount of the first mortgage that you still owe. Home equity loans and home equity lines of credit are types of second mortgages. The more equity you have, the more likely you are to be approved for a second mortgage, though other factors such as income and total debt are also factors.
The good news is that second mortgages tend to require less time and effort than refinancing due to more lenient underwriting guidelines. If you need additional funds in a hurry, a second mortgage could be your best bet. In some cases, lower transaction costs make a second mortgage less expensive than refinancing as well.
To determine if you can afford a second mortgage, use the mortgage calculator on this website and calculate the cost quickly. In the event that refinancing your existing mortgage is the better option for you, be sure to read about refinancing. Home mortgage information is always free on Home Mortgage HQ.