The main reason why people take out mortgages is because they help with financials. We are all familiar with the procedure of taking out the first mortgage. You go to the bank, they work out the details and offer you the loan, and then you just have to repay the loan with interest in installments.
But how do you proceed with the second mortgage and third mortgage? Well, keep reading because we are sharing the important details here.
What is a second mortgage?
A second mortgage is basically a home equity loan. It will allow you to borrow money from the equity in your home, but you don’t have to refinance your current mortgage. Home equity is a difference between the appraised value of your home and the amount you owed in the first mortgage. You get a loan based on that value that you get from this difference.
So, now your second loan is based on the equity of your home.
Advantages of taking out a second mortgage
Although there is nothing good about consolidating debt with a high-interest rate but there are some advantages.
1. A second mortgage can be used to pay off the expenditures of the home improvements. It will allow your home to look good and finish all the furnishing tasks once and for all. You can buy some furniture, have your home painted, and finish off some maintenance.
2. There could be other things where you need the loan money such as paying the university and college tuition fee of your child.
How do you qualify for a second mortgage?
If you want to qualify for a second mortgage, you must have over 20% equity in your home. But you need to be able to pay off the monthly payments of the second mortgage without exceeding your Total Debt Service Ratio (TDS).
Also, you might have a low credit score, but you can still qualify for a second mortgage. However, the interest rate will be high for a second mortgage. For a second mortgage, the lenders might ask for employment history. They may check the length of time you have been working with your last employer just to get the idea if their money is secured with the candidate.
What is a third mortgage?
A third mortgage is based on the value of your property. This is kind of a last resort for people. And people need to pay off the first and second mortgage before they start paying for the third. But at the same time, you will be paying 3 mortgage installments and it can really take a toll on anyone’s pocket.
Benefits of third mortgage
• Although getting a third mortgage is not ideal, it can help you improve your lifestyle.
• You can use the money to pay off any personal loan or fee.
How to qualify for a third mortgage?
The lenders take a look at your credit history and income. If you have more equity, you are more likely to qualify for the loan-to-value ratio. Steady income and good credit history could be a plus.