Second Mortgages: Significant Opportunities, Significant Risks

Second Mortgages Seem Like a Good Answer for Large Bills, But the Complexities Can Be Confusing. Our Real Estate Attorneys Can Guide You Through the Entire Process

There are times when you want or need to make a large investment or payment, but it seems tough to know where to get the funds to pay for it from. Enter the second mortgage. Got a load of emergency medical bills? Going back to school? Buying a new house or renovating your current one? In these cases and others, a second mortgage could be an appropriate route to take, given the right conditions. A second mortgage is money you borrow from your home’s equity or the current market value of the home you own minus the amount you still owe on it (your first mortgage). It essentially is a loan that uses a portion of your home as collateral. While there are many options for accessing substantial sums of money, a second mortgage is often the right way to go for an individual or family that has accrued substantial equity, needs a vast sum of money with a reasonable interest rate quickly, or is planning to use the funds to increase the home’s value through renovation.

Home Equity Loan vs. HELOC: Understanding Your Second Mortgage Options in NJ

There are two primary types of second mortgages in the state. A home equity loan provides an individual with a lump sum at a relatively low interest rate when compared to credit cards and other high-interest loans. Similar to a primary mortgage, a home equity loan agreement could include a 30-year timeline for full repayment. A home equity loan could be right for someone who needs a large amount of money immediately and has accrued a significant amount of home equity.

The other type of second mortgage is a home equity line of credit (HELOC). A HELOC is a line of credit available to you that can be borrowed against as you see fit. As such, a HELOC functions similarly to a credit card, and you are only charged interest on the credit you use. There is a draw period or timeline for repayment, after which the full amount must be repaid.

Why Second Mortgages Offer Bigger Loans and Lower Rates

When it comes to getting access to a large chunk of cash quickly, there are a few options. The most common are personal loans, credit cards, and second mortgages. Second mortgages differ from the other two because they often provide access to a more substantial amount of money than other loans or credit cards do. They also generally have lower interest rates, while providing a longer-term option for payback.

Highlighting the Advantages and Strategic Use of Second Mortgages

There are several advantages of going with a second mortgage. As noted, they can provide an individual with a large sum of money, depending on the size of their home equity. Also, interest rates are relatively low. Depending on need, one can take out a lump sum or access a line of credit. In some scenarios, getting a second mortgage is a great option despite the risks. For example, someone who needs a large sum of money to renovate their house would benefit from taking out a second mortgage because their investment will result in a higher home value and, thus, more home equity. Someone who wants to buy a new house but doesn’t have the funds for a down payment can borrow against their home using a second mortgage, and then when their current home is sold, they will simply receive a smaller payout, as they borrowed against it in advance.

Foreclosure Risk and Hidden Costs of Second Mortgages

The largest and most scary risk associated with taking out a second mortgage is that foreclosure is a possibility. Being responsible for two mortgages places a significant financial strain on an individual, even if they are using the second mortgage to pay off high-interest loans and are thus saving some money, or they have the home on the market and expect it to sell soon. If payments are not made, either lender could move toward foreclosure. And while it’s not a risk per se, one must take into consideration the costs and fees associated with obtaining a second mortgage. These could include HELOC maintenance fees and closing costs associated with both the primary and secondary mortgages pending a house sale.

Contact Our Real Estate Lawyers Regarding Your Second Mortgage Matters in Freehold, NJ

A real estate attorney at Chamlin, Uliano & Walsh can provide ample support when it comes to obtaining and navigating a second mortgage. This includes referring professionals to appraise your home to help you obtain a second mortgage, discussing options if you are worried about making payments, or representing you in a debt settlement negotiation.

Our seasoned team is prepared to help clients with legal matters surrounding second mortgages and other real estate legal concerns in Rumson, Eatontown, Asbury Park, Hazlet, Lavallette, Howell, Middletown, and other communities in and around Monmouth and Ocean County. If you want to secure a second mortgage so you can pursue your dreams and take care of your financial needs immediately, trust our lawyers to provide the legal insight and guidance you need. Contact us today at 732-440-3950 for a free consultation to discuss your needs.