A second mortgage is exactly what it sounds like, another mortgage that you take out against the same property as your main mortgage.
Second mortgages are a good solution when your bank has said no and you require extra funding to cover business or personal expenses but are not able to increase your primary mortgage. They are available from specialist lenders and are normally quicker and easier to arrange than a standard mortgage, as the application criteria are often less restrictive than that of a mainstream bank.
Most second mortgages are short-term with flexible terms and interest rates. They can be structured as interest-only, or the interest can be capitalised to reduce your outgoings. While they normally attract higher interest rates than standard mortgages, they are not as expensive as other lines of credit like personal loans or credit cards.
By taking out a second mortgage this allows you to retain the bulk of your debt, your first mortgage, with your bank at the cheapest rate and also allows you to maintain your relationship with your bank. Is a second mortgage right for you? Here are some situations where you might consider applying for one.
Home renovations
If you’re looking to sell your current home, you can often significantly improve the asking price by upgrading what interior designers call “the money rooms” – the kitchen and bathrooms. Buyers often assume that an old, tired kitchen or bathroom will cost tens of thousands to bring up to scratch, and will adjust their offer downwards accordingly. A second mortgage can help to fund a makeover that will attract higher offers when your home goes to market. Growing your property portfolio Lack of a sufficient deposit can be a major roadblock if you’re looking to get into property investment. By using a second mortgage to fund the minimum deposit required by most banks, you can take advantage of the great interest deals available for mainstream mortgages on the bulk of your borrowing.
Growing your business – working capital
Often, expanding your business involves up-front investment in additional equipment, stock, space, and personnel. A second mortgage can provide the necessary finance to fund all the things you need to increase your output and income.
Consolidating debt
If you have several smaller loans at high interest rates, amalgamating them all under a single second mortgage can reduce the amount of interest you pay on the total debt, and help you pay it off more quickly.
Good equity but low income
Do you dream of building a new home from scratch, but lack the money to purchase the land? If you have good equity in your existing home but your bank won’t increase your mortgage because your current income is too low to meet their criteria, a second mortgage could be a good option. Second mortgages can be structured to minimise your outgoings over the short term until you repay them from the sale of your first home.
Tax/GST arrears
If you’re running your own businesses, you’ll know what a minefield managing your tax can be. Miscalculating how much you need to pay can leave you with an unexpected IRD debt which attracts both penalties and interest, causing it to grow even larger. From there, it can be a downward spiral that is difficult to escape. It may be possible to use a second mortgage to negotiate a one-off settlement with the IRD in which they waive some or most of the accrued fees and interest.
So, if you’ve been struggling to obtain additional mortgage finance from your existing bank, talk to us about whether a second mortgage is right for you. We can source the best deal to suit your needs and with Best Mortgages dealing direct with Grant at Core Finance, we can normally get a response in 24 hours.
Give us a call today to find out how we can help you.
