If you require additional cash flow for your business or other personal reasons, using the equity in your property may be a viable option. Contrary to the thoughts of many, you can use personal real estate which has an existing mortgage as security for a loan provided there is equity available. A flexible lending criteria and fast loan settlement make second mortgages an effective alternative to mainstream lending.
What is a 2nd mortgage loan?
A second mortgage is a loan taken out whereby the property being used as security already has an existing mortgage. Multiple mortgages can use the same property as security with priority determined by the order that they are lodged. As they are classified as a secured loan, second mortgages offer significantly lower interest rates than unsecured loans such as personal loans and credit cards.
How do 2nd mortgages work?
Prior to taking an in-depth look at second mortgage loans, it is essential to understand the concept of home equity and how it applies. To get a second mortgage loan, you must have some level of equity available. To calculate the amount that you can borrow, you must know the following:
- LVR: The loan-to-value ratio (LVR) is calculated by dividing the loan amount by the value of the asset. It is represented as a percentage and the lender will specify the maximum LVR that is permitted.
- Mortgage: The existing loan amount still owing on the property.
- Property Value:The appraised value of the real estate being used as security.
Second Mortgage Loan Example
The applicant owns a residential property that is valued at $2,000,000 and has an existing mortgage of $1,000,000. The lender specifies a maximum LVR of 70%.
Second mortgage loan amount that can be borrowed:
= (Value of Property – Existing Mortgage) x (70%)
= ($2,000,000 – 1,000,000) x 0.7
= 1,000,000 x 0.7
In this example, the applicant would be able to borrow up to $700,000 with a second mortgage loan. Prospective applicants should be aware that they may have equity available in their property even if they are yet to repay a significant amount of the principal debt. Beneficial fluctuations in real estate prices can create equity in your property that you never knew you had.
What are the characteristics and features of 2nd mortgages?
The characteristics and features of second mortgage loans are highlighted by two key aspects, namely the lending criteria and application process.
A significantly more flexible lending criteria than traditional lenders such as banks is one of the key reasons for the increase in use of second mortgage loans. Unlike mainstream lending institutions, Simply Funds is open to lending to applicants with bad credit or a low credit score. As a low-doc loan, applicants are not required to submit an exhaustive amount of detailed financial documents. A loan-to-value ratio (LVR) up to 70% ensures wide lending parameters while the line of credit type facility, similar to a home equity loan, provides an interest only option on repayments.
At Simply Funds we pride ourselves on being able to provide an obligation-freeapplication process that can be completed in minutes. No credit score checks are conducted for pre-approval and desktop property valuations prevent any unnecessary delays. These characteristics place us in a position where we can approve a second mortgage application and provide funds within 48 hours.
What can 2nd mortgages be used for?
Knowledge of common uses and potential benefits will allow those looking to get a second mortgage to make an informed decision. Second mortgage loans are often used for the following purposes:
- Cash Flow: With no restriction on usage, many business owners utilise second mortgages to obtain money that can be used for business purposes. Just like other business loans, funds can be used to improve key business areas including finance, inventory, equipment, and marketing.
- Alternative to Refinancing: Although refinancing with the lender of your first mortgage makes the most sense, it is not always possible. Many applicants are required to seek alternative methods if their application for refinancing has been rejected, or when they need funds in a timely manner. In addition, alternative financing such as a second mortgage may be more cost-effective. Persons with fixed rate home loans may face significant break costs before being able to refinance.
- Debt Consolidation: The competitive interest rates associated with second mortgages make them a viable option for those looking to pay off existing debts such as credit cards which are incurring significantly higher interest rates.
What are the benefits of 2nd mortgage loans?
Second mortgages provide numerous benefits when compared to other loan products. They include:
- No Restriction on Usage: There is no restriction with respect to the manner which funds can be used.
- Fast: Second mortgages are considered fast loans as they can be approved, settled, and funded in less than 48 hours.
- Lower Interest Rates: Other lending products such as credit cards, personal loans, and other unsecured loans have significantly higher interest rates than those provided by second mortgages.
- Application Process: As already mentioned, the application process takes minutes with minimal documentation requirements and desktop valuations ensuring a seamless process.
- High LVR of 70%: Applicants to borrow up to 70% LVR with Simply Funds. This figure may decrease depending on the type of property being used as security and its location.
How do I get a 2nd mortgage loan with Simply Funds?
Getting a second mortgage loan with Simply Funds is easy. As is the case with all our loan products, the online application process can be completed and submitted in just minutes. It takes a handful of steps to get the finance you need and best of all, we do not require formal valuations or detailed financial documentation.
Once you have submitted an online application, one of our lending specialists will contact you to obtain some basic information. They will help determine your requirements and ask some basic questions regarding your assets and liabilities. They will then conduct a desktop valuation of the property being used as security and prepare the loan documents. Once signed, the loan is processed, and the funds made available to you. Submit an online application today and find out if you are eligible to get a second mortgage loan with Simply Funds.