Second Mortgage
An additional loan you take out using the equity in your home as collateral, while your (first) mortgage remains in place.
From a borrower’s perspective, the primary benefit of a second mortgage loan is that it allows you to leverage your property's equity without disturbing the typically favourable interest rate or terms of your existing first mortgage loan. By taking a second mortgage loan, a borrower may only be required to pay a fraction of the potential set-up costs and risk fees associated with accessing additional equity in their property when compared with another lender taking the first ranking position on title.
The biggest difference for the financier in providing a second mortgage loan is the risks associated in the event of a default, or from the ranking position of interest when it comes to the property sale. Additionally, there are ongoing obligations for the second mortgagee to notify the first mortgagee of their interest in the property and the borrower’s repayment history, and/or to enter into specific priority arrangements imposed by the first mortgagee. Because of this, second mortgage interest rates are typically seen as higher than the anticipated rates on a first mortgage loan, given the increased risk and work involved for the second mortgage lender.
It is always important to weigh up the comparable interest rates across both a first and second mortgage loan to see whether you could be saving by selecting this option. Below is an example of how ASCF assisted a previous borrower with a second mortgage loan:
What is a Second Mortgage?
ASCF can provide both consumer and commercial second mortgage loans to assist with a variety of day-to-day changes in life, including:
Property Purchase
Accessing equity to assist in purchasing or paying the deposit for an investment property.
Renovations & Repairs
Accessing equity to fund home improvements and increase your property's value.
Incomplete Construction
Accessing equity to complete the construction of a residential home, duplex, or townhouse, inclusive of the works finished to date.
Debt Consolidation
Paying off higher interest rate debts, such as credit cards or unsecured business loans, by rolling them into one lower interest rate property loan.
Business Investment
Accessing capital to invest or expand a business, often in cases where traditional lenders' timeframes do not align with your needs.
Business Cash Flow
Using a second mortgage loan to even out seasonal cash flow issues or meet trade creditor, wage, or payday super obligations.
Case Study
When a couple renovating their investment property to prepare for a sale ran out of funds, ASCF stepped in to offer a resolution.
Exit
The sale of the property was their exit strategy, with a contract secured shortly after, and the loan repaid in full in the following month. ASCF understands that customers require flexibility, so interest was only charged for the period the funds were drawn.
Solution
ASCF commissioned one of our panel valuers to complete an “as is” valuation on the security property, which allowed us to offer a 6-month, 2nd mortgage loan of $282,000 at 14.95% p.a. with an overall LVR of 55.59%. This enabled the customers to complete the renovations and list the property for sale.
Problem
A broker introduced ASCF to a couple who required $250,000 to finish renovating their residential investment property in Malvern, Victoria and maximise the property’s sale value. However, they had been unable to raise the necessary funds to complete the renovations through their 1st mortgage lender.