When you take out a mortgage to buy your home, the amount you borrow is based on the lender’s valuation of your home. However, the value of your home often tends to increase with time, while your home loan balance decreases as you make the scheduled repayments. As a result, your home’s equity, which is the value of your home over and above your pending mortgage, often goes up over the years. You could leverage this equity to borrow more from your current home loan. If your lender doesn’t agree to your loan increase request, you can choose to apply for a second mortgage.
Some scenarios where people choose to take on second mortgages include consolidating previous debts, planning significant home renovations, or using the money to guarantee someone else’s mortgage.
How do I qualify for a second mortgage?
Unlike a regular mortgage, a second mortgage is considered borrowing against your home’s equity. Your home is the security for both mortgages, but if you are unable to repay the loans, the lender you took the first mortgage from has priority in terms of getting repaid. Suppose your home is sold; the second mortgage lender could be forced to accept whatever is left after paying off your first mortgage lender. For this reason, not many lenders may offer a second mortgage. You may need to consult a mortgage broker to find a suitable lender.
If you find a second mortgage lender, you’re likely to still face strict borrowing terms such as lower loan amounts and larger fees. You’ll also need approval from your first mortgage lender before you can apply for a second mortgage. Getting this permission may involve paying fees which could run into hundreds of dollars. You should check if it’s cheaper to refinance your existing mortgage than applying for a second mortgage. Also, consider speaking to your lender about applying to them for a second mortgage in case they don’t let you borrow more from the current mortgage.
How much deposit do I need for a second mortgage?
Lenders offering second mortgages are likely to offer smaller loan amounts given the increased risk they carry as the second lender. Usually, you cannot borrow as much from a second mortgage as from a first mortgage, which means you have to put down a higher deposit. You’re also only likely to get approved if your home has sufficient equity. You should confirm that your home’s market value is indeed higher than the price you bought it for before applying for the second mortgage.
How long does it take to get a second mortgage?
Getting a second mortgage involves much of the same process as getting a home loan for the first time. Since your current mortgage lender also needs to see all the paperwork, this can add to the second mortgage’s processing time. You may need more time to find a lender that offers a second mortgage suitable for your circumstances. It’s worth setting aside time to consider options for a second mortgage, such as refinancing and speaking to your current lender.