Perhaps you had borrowed a mortgage and feel that you need some extra cash, you can consider taking a further advance, in other words a second mortgage.
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When to Take a Second Mortgage
Perhaps you had borrowed a mortgage and feel that you need some extra cash, you can consider taking a further advance, in other words a second mortgage. You qualify for a further advance if your house value exceeds the total amount of the mortgage that you had paid for earlier. As such, you'll possess enough equity to borrow more money, which will be a secured loan on your home.
You can use your existing lender to get a further advance or better still seek a low interest rate lender. Be advised though that your second mortgage lender will give you less amount at a very high interest rate alongside other charges, simply because it will pose a higher risk to the second lender compared to the first lender. In other words, the second lender will kind of be taking a 'second charge' on your property, meaning that if the debt was to be recalled abruptly and your home repossessed, your main lender will fist receive the payment and then the second lender.
These kinds of loans come in handy for individuals who need extra cash say to carry out a major home improvement or to pay for college fees or better still set up a business. It is a very good form of getting some lump sum cash in a fast way, but be advised that you'll be putting your investment on line. Ensure you have planned how you're going to repay the extra costs, beyond what you were paying initially. You need to factor in various things like whether the mortgage term was going to last through to your retirement and how you're going to repay it.
Like any other competitive loan industry, this too has its terms and conditions that you ought to be very cautious with. You ought to understand the fine small prints before committing yourself. Second mortgages may have discounted offers for low interests or special offers for a certain period of time but after the duration is over, they will get back to the set high rate, reason again to have a long term perspective of the loan rather than a short term.
Home equity can provide you with a security cushion whereby if the prices of the market go down, the negative equity 'gap' will not hit you but a second mortgage deprives you off this safety feature. In this case, the phrase 'mortgaged up to the eyeballs' never applies. You are also likely to incur various other costs like re-evaluation survey, arrangement fees, and additional payment protection fees thus you need to also factor them in before going for the further advance or second mortgage to seek lump sum re-financing.
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By Oskar Hörnell on January 18, 2010, 5:56 pm
I basically agree with the author of this article.