A house is an asset as it increases in value and builds equity over time. Homeowners can take advantage of the asset and make some extra money. A second mortgage is an option available for existing mortgage loan holders to get an extra amount to fulfill financial requirements. The second mortgage is nothing but another loan on a house which is already under a loan, so homeowners should opt for it only if it is needed. Despite its benefits, a second mortgage can backfire if you don’t get a clear understanding of the product. Here are some cases which can make a second mortgage a favourable option.
Home renovation
This is the most common reason homeowners opt for a second mortgage. Remodelling a house will add good value to the property as well.
Debt consolidation
If a homeowner has existing debt like a personal loan, a second mortgage can help clear that. Switching from an unsecured loan to a secured one is not a bad idea. But one has to consider the interest rates. Usually, the interest rates on secured loans are lesser than the unsecured ones. And being a mortgage loan, the finance is also provided for a higher term.
Alternative to refinancing
Refinancing is like getting a new loan by clearing the older one. On a second mortgage, the interest rates can be quite less in comparison to refinancing, and even the repayment period would be longer. The application process is also simpler.
Down payment
In the UAE, a minimum of 25 per cent of the property value should be borne by the applicant. In such scenarios getting a second mortgage would be helpful assuming you already are a mortgage loan holder.
Higher education
A second mortgage can be used to fund higher education expenses. But make sure this new mortgage is affordable than education loans.
Nikitha Devi is a senior analyst at mymoneysouq.com. The views expressed here are her own.
