WHY YOU MIGHT CONSIDER A SHORT-TERM SECOND MORTGAGE
Let’s look at short-term second mortgages – what they are, the benefits of using them and common scenarios where they make sense when you need quick access to funds for up to 12 months.
What is a second mortgage?
It 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 is ranked below the first mortgage so that in the event of a foreclosure, the first mortgage is paid back as a priority (then the second mortgage is paid from the balance of funds). This increases the risk for the second mortgage lender. As such, lending criteria for a second mortgage is often quite strict and there’s typically a fair amount of scrutiny in the application process. 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.
The benefits of using a short-term second mortgage loan
If you have solid equity in your home, an inability to extend or refinance your primary mortgage loan, and a need for access to significant funds, a short-term second mortgage may be worth considering.
Short-term second mortgages are advantageous compared to other forms of finance such as personal loans and credit cards. For one, a short-term second mortgage allows you to borrow more funds based on the value of the equity in your home. Secondly, because the loan is secured by your property, the interest rates are far lower than alternative sources of funds. There are many second mortgage lenders in Australia, and you can often apply online for fast approval.
Why you might take out a short-term second mortgage
Most people seeking additional funds for a variety of purposes, would first consider refinancing to borrow more with their current (primary) lender. But there are situations where this is not possible, and a short-term second mortgage is a good option to explore.
For businesses, a short-term second mortgage loan can be used to boost working capital or even purchase a business.
Similarly, short-term second mortgages are often considered for personal use. For example, you may have a fixed-rate loan at a very low-interest rate, and it is not worth the exit fees or higher interest rates to refinance. Or sometimes homeowners use a short-term second mortgage loan if they are acting as guarantor for an adult child who is purchasing a home. In this case, the second mortgage provides additional security for the bank.
A short-term second mortgage loan can also be used as a short-term source of funds, such as when you are selling one property and buying another, and the settlement timing doesn’t match up. A short-term second mortgage loan can be used to bridge the gap during the sale and purchase process.
Here are some other scenarios where you may consider a short-term second mortgage loan in Australia, compared to alternative sources of funds:
- A second mortgage loan can be used to purchase an investment property
- Consolidating debts (personal loans, credit cards, etc)
- A short-term second mortgage can help you pay a one-off large personal debt, such as a tax bill
- Undertaking renovations on your home (which adds value to your home and reduces the risk across both mortgage loans)
How to apply for a second mortgage loan?
Our short-term second mortgage home loans are flexible, require minimal documentation and are usually approved within days. We also accept applications from borrowers with affected credit history.
At Mango Credit, you can submit an enquiry by phone, email or apply online. Upon receiving your enquiry or application, we email an indicative quote that details the interest rates, costs, loan structure and document requirements. If you agree with the proposal, we then issue a formal and more detailed letter of offer. You return the signed proposal with the required documents, and we ask our solicitors to issue security documents or order a valuation if needed. Once we receive the security documents, we settle by electronic transfer of funds. Click here to apply for a short-term second mortgage loan.
When can I get a second mortgage?
Getting a short-term second mortgage can be a good option if you need quick access to funding for personal or business purposes. You need to have solid equity in your property to consider a second mortgage.
Is a home equity loan a second mortgage?
A home equity loan is considered a second mortgage if the borrower has an existing mortgage on the property already. In case of a sale, the home equity loan lender doesn’t get paid until the first mortgage lender is paid. However, not all home equity loans are second mortgages. A home equity loan that’s not a second mortgage is when a borrower owns a property free and clear and decides to get a loan against the value of that property. When this happens, the home equity loan lender is then considered a first-lien holder.
What is the difference between a refinance and a second mortgage?
When you get a second mortgage home loan, you’re borrowing money against the equity you have in your property, whilst you still have a primary mortgage. Meanwhile, refinancing is replacing your primary loan with a new loan. You can choose a new lender, take on a new loan type and interest rate or change your loan term. Refinancing allows you to take your existing mortgage and roll it into the new one so you’ll only have one payment to make each month. It also helps you get a lower interest rate and monthly payment.
How to qualify for a second mortgage
Different lenders will have different requirements to a second mortgage home loan. Traditional lenders usually expect solid equity in your property, a high credit score, proof of dependable source of income and a good debt-to-income ratio. The good news is that non-bank lenders, specialist lenders and private lenders, like Mango Credit, have more flexible loan parameters – including accepting borrowers with limited credit scores. Borrowers with affected credit are still eligible for a short-term second mortgage as long as they have considerable equity in their property. Also, we only require your most recent council rates notice and your most recent existing mortgage statement when considering your loan application.
When you need access to funds quickly, and cannot extend or refinance your existing (or first) mortgage, a short-term second mortgage loan can be a good solution. You can apply online for a short-term second mortgage. This form of funding can be used for a short period of time (2 to 36 months) for a variety of purposes.
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