What to Do When Getting a Second Mortgage
If you’re looking at make a little extra cash with your home, then you can take out a second mortgage on your St. Louis home. To do this, you must use your house as collateral in the deal to get a loan in addition to the mortgage you already have. By doing this, you can tap into the equity of your home and borrow from that balance.
It works like this: if your St. Louis home is worth $300,000 and your mortgage balance is only $225,000 now, then you can borrow as much as 80 percent of that $75,000 in equity. This is a great way to build a little more cash into your monthly income.
Of course, that’s not all you need to know. Here is more information to consider when getting a second mortgage in St. Louis.
Know all the facts
You can use this money any way you like. Most lenders advise homeowners to reinvest that money into their homes to make their value go up even more. You might add on another bedroom to the home or you might finish the basement or attic. These changes can improve your St. Louis home’s equity even more, and they’ll pay off when it comes time to sell your home.
You might also use this money to pay for college or provide for yourself if you happen to be unemployed for a period of time. If you’ve accumulated a large amount of credit card debt, using money from a second mortgage is a great way to pay off this debt all at once.
What’s important to remember is not to use this money on more frivolous activities and items, such as a vacation or a new wardrobe. Use the money only to invest in the future.
Understand the types of mortgages
When getting a second mortgage, you have a few options. You can either get a home equity loan or a home equity line of credit. The first option gets you the money in cash right away. You’ll pay your monthly installments just like you would for a regular loan. With this option, the interest rate will be fixed, and you will have to pay interest right away.
With the second type of mortgage, you can get an adjustable interest rate. The big difference between these two is that with the home equity line of credit, you won’t get the money right away. You’ll have access to your money, but it will be through a line of credit. If you don’t want to overspend, this can be a good option. You’ll only pay interest on the actual money you spend.
More fees and higher interest rates
To get a second mortgage, your lender will basically do the same process as the first mortgage. The biggest difference is the fees and interest rates. These will be higher because the lender is actually taking on more of a risk. If you end up defaulting on the first loan and the St. Louis home is foreclosed on, then the lender might not get any money back from the foreclosure at all.
Keep these fees in mind when applying for a second loan. Remember, you can use a different lender than your first mortgage so be sure to shop around.