Second Mortgages are loans secured by property in addition to the primary mortgage. These loans have a secondary priority behind your primary mortgage. These types of loans use the equity in your home as security.
Depending on how the funds are withdrawn, like in the case of a revolving credit HELOC which is treated much like a credit card. Second Mortgages can also be a second closed mortgage. This means you would receive one lump sum from your equity and gradually pay it down.
Typically, Second Mortgages are subject to higher interest rates. These help to protect the lender due to the higher risk of defaulting on the loan more so than primary mortgages. It is important to fully understand your repayment capability before you take out a second mortgage
Taking Out a Second Mortgage to Pay Off Debt
Debt consolidation is a common debt management strategy that involves combining multiple debts into one, typically lower-interest loan. People who have built up sufficient equity in their home sometimes take out a second mortgage so that they use their home equity to pay off high-interest debt.
However, this strategy doesn't actually pay off the underlying debt; you are simply taking out a new loan to pay for an older one. This is why some people consolidate their debt and then find themselves in debt again within a short amount of time.
If you are considering taking out a Second Mortgage, contact The Woollam Mortgage team to explore your options. Our Mortgage Professionals will help you find a second mortgage that best suits your needs.