Information You Should Know Before Applying for 2nd Mortgages

Out of many loan products available in the financial market, second mortgage bridging loans are also on the list. Do you know about these loans, how to apply, and get approved? Not an issue if you have no idea about this type of loan. As evident from the name, these loans occur after the first registered mortgage on your property. Borrowers take the first mortgage while buying the property. Sometime later, they can take out another loan on the same property when funds are necessary for some other requirement.

What is a second mortgage?

Like asset finance or any other type of loan product in the market, this also has a particular way of functioning. It is named second, and thus it is ranked behind the 1st mortgage. What does this rank signify? The rank is in terms of the repayment priority.

If the borrower sells the property before completing the repayments, the borrower uses the sale to pay off the first mortgage. The second mortgage is also repaid from the sale at the same time. One significant point to ponder is that your 2nd and 1st mortgage lenders need not be the same. You can approach a different lender than the one with your first mortgage to source the best deal.

Should you consider this as a bridging loan option?

Now that you know you can get another loan on the same property, is it a good option for you? Should you consider getting this loan? Well, you can consider this loan product in the following cases:

• If you are a builder in need of cash for an ongoing project.
• If the first loan on the house has a fixed rate and no exit fees. The exit charges can make refinancing a loan almost impractical. In short, all the terms of loans should be favourable.
• If you need an immediate injection of cash in your business and the property holds some equity. You can use this loan as asset finance to buy new machines and inventory, start a business, pay ATO debts, and many more.
• The first mortgage lender will not extend the existing loan any further.
  You can also consider this loan option when you do not wish to refinance or lose the low fixed rate.
• You can use 2nd mortgage loans for any business purpose you like.

How much does a 2nd mortgage let you borrow?

Well, similar to other loans a second mortgage loan amount depends on a few factors. Although the lender plays a massive role in determining the loan limit, the loan-to-value ratio (LVR) is also a significant consideration. LVR, in this case, will be higher than what you have on your first mortgage.

LVR represents the loan amount as the percentage of the value of the property. Let us consider an example. If the value of your property is $800,000 and you have to take out a bridging loan of $600,000, then your LVR should be 75 percent. You can calculate the percentage by dividing the amount of money required by the total value of the property, which is $600,000 by $800,000 in this case.

By building up equity in your property, you can raise more funds for this loan. You can build equity if the value of your house rises after taking out the first loan or when you repay a significant amount of your first mortgage. Since you do not have to go to banks, the application process and approval are easy and quick. Second mortgages are a great way to get access to funds quickly.

Advantages of second mortgage loans

Let us now check out the benefits of applying for a second mortgage funding below.

• Rapid and easier in approval
• The lenders offer more customized and better services
• It is alright to apply even with a bad credit
• Flexible terms and competitive interest rates
• You can repay the loan early with no additional fees

Final Words

You can get another loan on your property even with a first mortgage already in place. The approval is also possible with a bad credit score. You can repay this loan without any exit fees and remove it from your house. One downside is that the interest rate is higher than the first mortgage, however they are normally only for a short period of time. Consider all these factors before applying for a second loan on your property.