Why Do Owners Borrow a Second Mortgage?

By Brenda Van Niekerk

Why do home owners borrow a second mortgage when they already have one loan secured against their home? A mortgage is used to finance the purchase of your home and a second loan is to be used for whatever the home owner wants to do with the money.

The second loan makes your chances bigger of losing your home if something happened to prevent you from paying off the loans in full. The interest rate is higher than the first loan, but the loan charges will be less as a loan has already been registered on your name.

The second mortgage does not necessarily have to be taken from the same bank as the first one. You can apply at any bank of your choice. You could shop around the banks and money lenders first and decide where you would like to apply for this loan.

This loan is usually for a large amount of money so many home owners take them to renovate their homes. You could have this money paid out to you in a lump sum, or you could open a line of credit with the bank or money lender. This means that if you are busy with home renovations, you could draw the money as you required it to pay for building material and labour. This makes you more accountable for the money you have spent.

If you have a good credit rating this will count in your favour when you apply for a loan. You will have to prove that you are in the financial position to pay off both loans every month.