A second mortgage is one of the most common loans Australians take out every day. The good news is that there are many second mortgage lenders in Australia.
In this article, we’ll take a closer look at what a second mortgage is, and the benefits of this type of financing.
What exactly is a second mortgage?
A second mortgage is a secondary loan secured by your home or property. Your existing mortgage is the primary loan, also known as the “first mortgage,” and has a higher significance than a second mortgage on the same property.
It is essential to note this because, in the event of foreclosure of the home, the repayment of the main mortgage takes priority over the repayment of the second mortgage. So there is more risk for the lender of a second mortgage, which usually means that a second mortgage has a higher interest rate than a first mortgage.
In order to be able to apply for a second mortgage, you must have built up very good equity in your home. People who have only recently started paying off a home loan are usually not yet eligible to apply for a successful second mortgage. For this reason, it’s important to determine exactly how much equity in your home first, as this will largely dictate how much you can borrow.
Now let’s take a look at some of the benefits of a second long term or short term mortgage.
Second mortgage: the advantages
If you have strong equity in your home, an inability to extend or refinance your primary mortgage, and need access to significant funds, a second short-term mortgage may be worth considering.
Short-term secondary mortgages are advantageous over other forms of financing such as personal loans and credit cards. On the one hand, a second short-term mortgage allows you to borrow more funds based on the equity value of your home. Second, because the loan is secured by your property, the interest rates are much lower than other sources of finance. In addition, second mortgage loans are known to be cheaper, with higher loan-to-value ratios (LVRs) than loans with reservations. In real terms, this usually means that the amount you can borrow is larger and more economical than loans with reservations.
On the rise: short-term home improvement mortgages
Renovations or other home improvements, such as a swimming pool, are increasingly common reasons Australian homeowners decide to take out a second mortgage. It’s really more of an investment, and often a pre-sale strategy, as home improvements or additions generally increase the overall value of the property.
Consider a second short term mortgage for debt consolidation
If you have a bunch of other debt – like bad balances on multiple credit cards and maybe even a personal loan – it can put tremendous financial pressure on you when you’re paying off a home loan at the same time. In this scenario, it is common to use a second short term mortgage to pay off one; existing debt at high interest rate and consolidate the debt into one structure at a lower rate.
Need a down payment for another property?
A second short-term mortgage can also be used as a deposit to buy other property, including investment property.
Apply for a second mortgage online
Many Australian lenders who offer short term mortgages will allow you to apply for the loan online. It’s very convenient, as you can do the app anytime you want, all from the comfort of your home.
In addition to being able to complete the loan application online, all supporting documents can also be downloaded along with the application form and submitted, provided you have digital copies of the documents in question.
To take away
If you’ve built up decent equity in your home and need extra cash, it’s worth considering a short-term second mortgage option to unlock funds for personal or business use.