The professional mortgage agents at Unimor, can help you organize your financial situation even if you do not own your own home or if you are renting. You may currently own a home but because of the local real estate market and the current economic conditions, you may not have enough equity in your property to access additional financing.
You may also have a number of credit cards or high interest loans that we may be able to consolidate into a secured or unsecured personal loan with a bank or credit union at a lower interest rate than you are currently paying. This new loan may also reduce your payments, which may give you the opportunity to begin saving up for a down payment on a home of your own. There are many types of loans available and our team of agents at Unimor can assist you in choosing the right one!
What is a Second Mortgage?
A second mortgage is a secured loan or home equity loan that is generally a smaller amount than a first mortgage. Homeowners get a second mortgage when the home or property in question already has a first mortgage. However, in order for a homeowner to borrow money against a second mortgage, they are required to have equity in their home. Home equity is the value of your home, minus any money still owing against it. For example, if your home is worth $200,000 with a $130,000 first mortgage, then your home equity is $70,000, which would be the amount available for a second mortgage. Some of the benefits are that you can use a second mortgage for debt consolidation or major purchases such as a new vehicle, tuition, vacation home, etc. Second mortgage loan interest rates are generally higher than first mortgage interest rates because they are riskier for lenders when your first mortgage has not been paid back, but they are still lower than most credit card and vehicle loan interest rates.
If you have equity in your home but your debt is weighing you down and you would benefit from a reduction in your monthly payments to free up cash flow, you should consider consolidating your debt through a second mortgage or home equity loan.
For example: Sally owns a house and has a $20,000 credit card debt. She wants to reduce her monthly payments on her credit cards. She can borrow against a second mortgage to pay off the credit cards and significantly lower her monthly payments, saving her money overall.
|Before Debt Consolidation|
|This example uses 21% compound interest rate, with 2.78% minimum monthly payment calculation.|
|After Debt Consolidation|
|This example is a 10 year term.|
The above example shows the savings are $310 per month, which is more than a savings of 50%. The bottom line is that a second mortgage or home equity loan could be a perfect solution for debt consolidation!
What is a Secured Loan?
A secured loan is backed by an asset (i.e. a car, boat, or motorcycle, etc.), which is owned by the borrower. Lenders typically require an asset as collateral to secure the debt when the qualification of the borrower is in question. The security gives the lender a legal right to seize a borrower’s specific asset in the case that the borrower defaults on the loan. The asset is considered encumbered, which means it typically cannot be sold or transferred by the borrower without the lender’s permission, unless the debt is paid off in full.
What is an Unsecured Loan?
An unsecured loan is a borrowed amount of funds that is solely based on the promise of the borrower to repay the loan. A lender can offer an unsecured loan based on their assessment of a borrower’s qualifications and the borrower’s ability to repay the debt. Unsecured loans are not backed by an asset and are therefore riskier for a lender, which often results in a higher interest rate on the loan. Typically, credit cards are prime examples of unsecured loans. In the case of borrower default, the lender cannot seize any of the borrower’s specific assets, but can attempt collection of the debt through prearranged methods and the lender can report any default amount to the various credit reporting agencies, which will negatively affect the borrower’s credit.
What is a Credit Line / Line of Credit?
A line of credit is a type of revolving loan with a pre-approved credit limit. The line of credit has a variable interest rate and gives the borrower flexible access to funds, whenever they are needed. The funds available in the line of credit can be withdrawn for use at any time during the life of the line of credit. In some ways, a line of credit is very similar to a credit card because as soon as you repay your balance in part or in full, you have access to the funds again. A credit line can be a secured loan with backing of an asset, or an unsecured loan usually with a higher interest rate.
One of the major benefits of a credit line is that they have lower interest rates compared to most credit cards. Another benefit of a line of credit is that some require interest only payments, which can help to keep your monthly payments low and your cash flow accessible.
Reasons for obtaining a second mortgage, secured loan, unsecured loan, or line of credit may include, but are not limited to:
- Debt Consolidation
- Home Improvements
- Children’s Education
- Mortgage & Tax Arrears
- Purchasing a Vehicle