Over the course of the recession, being approved for a mortgage has become increasingly difficult. Many lenders have added some extra conditions to their offerings and even withdrawn certain products. Applying for a second mortgage becomes extremely difficult. However, you can still get a second mortgage through their terms and conditions. For most people who have two mortgages, they actually do not want to pay their second mortgage. How would this affect their finances?
How to get a second mortgage?
Understanding Second Mortgages
A second mortgage is essentially a loan secured by the value of the home, where the homeowner borrows against the home’s equity. The difference between the home’s current market value and the outstanding balance of the first mortgage. Because it is “second,” this loan is subordinate to the primary mortgage. It means the first mortgage lender has priority in repayment if the property is foreclosed.
Provide the Right Information
Whether you are applying for a first mortgage or a second mortgage, you need to ensure you are providing all the details that will ensure you maximize your chances of being approved. The most important information a lender will want to see is that you can afford the mortgage which usually means providing proof of your income through wage slips. They will also request bank statements as well as proof of ID and residency.
Figure Out How Much You Can Borrow
As opposed to a few years back before the economic downturn, you’ll need a substantially larger deposit. To get the very best rates expect to need to give a 25% deposit and if you only have to put 10% down then you’ll be paying a premium rate. There are also much fewer mortgages available that need only 10% deposit in the current climate and credit scoring is stricter than ever so you’ll need to have an excellent credit rating too!
Waiting for the Outcome of Your Application
Usually, you’ll know the outcome of your application quite quickly but every application is subject to individual assessment. Once your application passes the initial assessment, the property for which you’re borrowing the money will be valued on behalf of the lender which should take around 2 weeks. If the lender is pleased with this then you and your solicitor will both be issued with a copy of the mortgage offer. From this point, all the legal processes, transfer of the property to your name, and drawing down of your funds should take anywhere between 4 to 8 weeks.
What will happen if you fail to pay off your second mortgage?
If you are facing serious financial difficulties, can you get away with not paying your second mortgage? Although second mortgage lenders are indeed in a subordinate position to the primary lender, it doesn’t mean that they cannot take action against you as a borrower if you fail to pay off your second mortgage.
Here’s a quick look at the risks that a second mortgage lender takes:
- In the event of a foreclosure, it is the primary mortgage lender that would be paid off first.
- Second mortgage lenders are ‘forced’ to apply a higher interest rate because they do handle a higher risk as compared to the primary mortgage lender.
