Yes, you can definitely get a second home loan in Australia. However, there could be several glitches to avoid when considering this loan option. A second mortgage is a financial loan obtained on a property or home which you previously have a mortgage. This enables you to gain access to extra finances. But, this may not be a healthy option for many borrowers.
Prior to deciding to get a second mortgage, be sure you fully grasp the way they work and also the process that you will need to go through.
Multiple Home Loans – How Does it Work?
Should you be currently settling a home loan, applying for a second mortgage entails obtaining one more loan using the same property like a security.
The second mortgage loan is placed right behind very first home loan, meaning that in case of default and you were not able to pay off your debt, your property will be set out for sale. Once the property had been sold, your first mortgage is the priority for payment before your second mortgage loan. This is among the main reasons why second mortgages more difficult to get than conventional home loans.
For instance, suppose you do have a home loan for $200,000 with Lender A. You then make application for a second mortgage of $200,000 on the same property with Lender B. In case of default and payments had not been made, the property will be sold. If the property had been sold for $380,000, Lender A would be repaid in full in the amount of $200,000. Lender B will receive only the remaining amount from $380,000 after Lender A had been fully paid.
Remember that to be able to be eligible for a second mortgage, you have to get authorization from your present loan provider.
Why Opt for a Second Home Loan?
For most of borrowers, refinancing a mortgage with another loan provider provides a less risky alternative because it enables them to gain access to a higher loan amount. On the other hand, in some cases obtaining a second mortgage could be helpful.
For instance, if you wish to gain access to some of your home’s equity however your current loan provider has declined your demand for a bigger amount, a second mortgage might be a feasible alternative. This may be the case should your first mortgage is under a fixed rate loan. You don’t need to be worried about costly exit charges the fixed rate you could have in your loan maybe considerably much better than the present variable rate offered.
One more typical scenario in which a second mortgage is a good idea is where you stand ensuring financing for another person, for example if you are making use of your home to secure your child’s mortgage. In this instance, the second mortgage offers additional security for the lender, letting them recoup their deficits when your son or daughter fails on the mortgage.
Is it Difficult to Apply for a Second Mortgage?
The majority of Australian loan companies are hesitant to agree to a second mortgage application. This is for the reason that second mortgages are viewed as a high-risk choice because of the lower priority positioned on second mortgages.
Being mindful of this, most loan companies will possibly put tight restrictions on the loan amount you could access or just decline to provide a second mortgage entirely. However you can find loan companies who are able to provide a second mortgage. A reliable mortgage broker can assist in this scenario.
If you would like sign up for a second mortgage, you will need to obtain endorsement from the loan provider that funded very first home loan. You will generally have to pay fees to have the first loan provider evaluate your request of second mortgage.
Should you be applying for a second mortgage using the same loan provider that provided your first home loan, you could be in a position to borrow as much as 95% Loan to Value Ratio. On the other hand, borrowers applying for a second mortgage using a different loan provider might be able to gain access to as much as 85% Loan to Value Ratio.
For self-employed individuals looking to get a low doc loan, you may not be able to get an approval for second mortgages except if you choose to use private lenders, however, this is not a good option to take.
Should You Take a Second Home Loan?
Getting a second home loan is not an easy decision to make. There are considerations that you will have to look into much like when taking out your first home loan. Second mortgages usually have higher interest rates. Making additional repayments can help second mortgages however you have to make sure that you will be able to afford these future payments. You may want to seek for financial advice before taking out second mortgage loans.