How does a second mortgage work?

Recently updated on January 11th, 2023 at 11:28 am

Do you need access to a sizeable chunk of money? Maybe you want to do some home renovations or are planning to purchase an investment property. Or do you need it to consolidate your debts? Then, why not consider tapping into your home’s equity? Although you already have a mortgage on your property, you can often still take out a second mortgage.

Here’s an article that provides some insight into what you need to know about second mortgages.

What is a Second mortgage?

A second mortgage is exactly as it sounds – a second mortgage loan that is secured against your property when you already have a primary loan (or first mortgage). A second mortgage means you’re putting another loan on a property, with an existing loan ranked below the first mortgage. Or in other words, you have two different loans secured against a single asset.

People choose to take out a second mortgage for a variety of reasons, including:

  • Home renovations or repairs
  • Debt consolidation
  • Purchase of an investment property
  • Assisting with business cash flow
  • Starting a business

How does a second mortgage work?

A second mortgage allows you to put this equity to work instead of having that money tied to your home. You can also use it when guaranteeing a loan for someone else, such as for your child’s home loan.

With a second mortgage, a lien remains on your home until you’re able to pay off the loan completely. In case of a foreclosure, the first mortgage is paid back first, and the second mortgage is paid from what’s left in the funds. This makes the second mortgage deemed a high-risk borrowing option because of the lower priority placed on it.

Can I take out a second mortgage on my home?

Your home equity largely determines whether you can take out a second mortgage on your home. Home equity is the portion of the loan that you have paid off as you pay off your principal loan balance over time.

In principle, you subtract the amount that you have paid toward your principal balance from the total amount borrowed to determine how much equity you have. You can apply for a second mortgage as long as you have enough equity in your home to satisfy the lender. Your equity also determines how much money you can get with your second home mortgage.

To even consider a second mortgage, you need solid equity in your property, given the Loan-to-Value (LVR) ratio needs to include the total of both loans to meet the borrowing criteria for second mortgage lenders in Australia.

In addition, you’ll typically need permission from your existing or first mortgage lender before taking out a second mortgage.

Is it easy to get a second mortgage?

The ease of taking out a second mortgage is largely determined by how much equity you have in your current property, as well as the lenders’ risk assessment criteria. Traditional lenders, such as banks, usually have tight lending criteria, though alternative lenders such as non-banks, specialist lenders, fintechs, and private lenders are renowned for having more flexible lending criteria. In addition, there are many second home mortgage lenders in Australia, and allow borrowers to apply online and have quick approvals.

Why choose Mango Credit

Consider the established short-term lender, Mango Credit for your second mortgage.

Since 2001, Mango Credit and Mango Mortgages have helped thousands of Australians get out of a bind and explore great opportunities through short-term financing solutions. In addition to second mortgages, the specialist private lender offers caveat loans, bridging loans, first mortgages, and home equity loans.

Mango Credit helps bypass the difficulties of going to a traditional lender. The application process is quick and easy – and it can be done online. The company is renowned for its flexible underwriting and requires minimal documentation. There’s also no credit check or income assessment, and funding typically becomes available within 3-5 days from application.

Mango Credit provides full transparency and honesty on fees, interest rates, costs and charges with the goal to be fair and ensure there are no surprises. Any additional costs, such as late payments, are also explained upfront.

Are you ready to apply for a second mortgage? Complete your online application form now! For queries, contact us.

Key takeaway

Consider a second mortgage if you require quick access to funding for personal or business use. This loan helps you use your home equity and put it to work. Although specific requirements vary among lenders, you need solid equity in your loan to be considered for a second mortgage.


Mango Credit

Yanis Derums is the Founder and Director of Mango Credit– a leading private lender specialising in bridging loans for personal use and business short term loans for commercial and/ or investment purposes. Yanis has extensive experience with financial analysis, credit assessment, product structuring, and general business management

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