People often rely on mortgages to get emergency funds and meet financial obligations. However, many are confused about taking a second mortgage from a financial institution. Individuals believe that they can get a mortgage only once. Well, a second mortgage is also available on the equity built on the first loan. However, there are some conditions for getting a second mortgage. Second mortgage proceeds can be used for various purposes, depending on the individual.
Read on to know more about acquiring a second mortgage in India.
Understanding the concept of a second mortgage
A second mortgage loan is taken against the equity built in an existing home. Consider an example where someone has already taken a mortgage on a property. The mortgage amount is INR 25 lakhs, but the debtor has repaid INR 15 lakhs to the respective financial institution. Please note that these numbers are related to the principal amount of the mortgage. The interest paid on the loan does not add up to the equity. In the above situation, the debtor will have an equity of INR 15 lakhs against the house. The principal amount paid adds up to the equity for the debtor. Now, the debtor can apply for a second mortgage of INR 15 lakhs from the respective financial institution.
If someone has returned the entire first mortgage loan to the financial institution, they will have greater equity. They can leverage their house or any other real estate property to acquire a mortgage. Second mortgages are riskier for financial institutions as they have greater chances of default. For the same reason, the interest rate on a second mortgage is always higher than that of the first mortgage. The amount received from a mortgage can be used for home renovation, clearing debts, shopping, and many other purposes. Occasionally, mortgages are also referred to as loans against property or home equity.
Understanding the types of mortgages
An individual can apply for a home equity loan or a mortgage line of credit. In a typical mortgage, an individual receives a lump sum based on their equity. Usually, financial institutions don’t offer a loan up to 100% of the available equity. Instead, they offer loans up to 80% or 90% of the available equity. The mortgage amount is converted into instalments, and the debtor has to pay monthly. The same procedure will continue throughout the mortgage tenure.
Unlike a home equity loan, a home equity line of credit does not offer a lump sum. Instead, it approves an amount based on the available equity, and an individual is allowed to use a portion of the amount. Fixed payments aren’t made to the financial institution for a home equity line of credit. An individual only has to pay the amount used from the available credit line in every billing cycle.
Documents/reports needed for acquiring a second mortgage
One has to submit some documents for acquiring a second mortgage loan, which are:
• Credit report
• Proof of income from all sources
• Identity proofs
• Home address proofs
• Tax return statements/documents
• Financial institution account statements for the past few months
• Statement of the primary mortgage
• Insurance documents
• Property deedsBesides the documents mentioned above, a financial institution may also require some other documents to offer a second mortgage. One also has to fulfil mortgage loan eligibility to receive the loan amount. Second mortgages are secured loans, and people have to pay lower interest rates than other loans. Also, individuals can use the second mortgage amount for any purpose. Apply for a second mortgage right away!