A second mortgage can do wonders. The huge cash can give you the needed lift to get you to a better point in life. But it’s also tricky. Read on to find out why.
It may have become but a blip on the screen of American consciousness but Jennifer Lawrence-starred movie Joy gave her the 73rd Golden Globe Best Actress Award. And since the multi-awarded Robert de Niro played the father of the actress in the film, we could say that it definitely is one film to watch.
But for anyone who’s looking to get the most out of business in life, the plot of the story can be a timely push forward. What makes the main character so endearing was her meteoric rise from a lady with a long history of failures (e.g, failed marriage, failed job, failed family), to her eventual success: the creation of a business empire based on an ingenious floor mop.
What should interest you is how Joy’s character decided to take out a second mortgage on her house to save her failing business. For many, such a possibility can attract attention and raise ears. How do you make a second mortgage possible? While the story of Joy may be fictional, the possibility of a second mortgage on your property is not. Indeed, you may take full advantage of it. Check out the pros and cons of getting one. ;
The Advantages of a Second Mortgage
In the Jennifer Lawrence film, Joy was an airline booking agent who was getting nowhere. She was struggling to keep things together. Most notably, her private life was a mess. Her ex-husband Tony was sleeping in her basement while her single mom Terri spent days watching soap operas from the bed. If there was one light in this tunnel of darkness, it would have to be her grandmother Mimi who believed Joy will succeed in life eventually. To add to the confusion, Rudy (Robert de Niro), Joy’s father moves in with her, settling in the basement together with her ex.
Joy turned things around, however. She invented a self-wringing mop that she sold on TV. And as sales went up, Joy had to take a second mortgage on her house to satisfy a projected 50,000-units order.
And that right there shows what makes a second mortgage so advantageous. As defined, a second mortgage is actually a lien that is taken out on your property even when you already have a loan on it. To note, a lien is the right to claim and possess a property when certain conditions are met.
Take note. Second mortgages can give you access to a huge lump sum. Best of all, you can use it for just about anything you want unlike other loan types (e.g., student loan, car loan). You can use it to finance a business or to go back to school.
Take note, a second mortgage can get you up to 90% of your home equity. That’s a lot. Then again, it depends on your home equity. That means if the value of your home is $200,000 and you’ve already paid as much as $80,000 (plus down payment) worth of home equity, then you can take out as much as $80,000 loan, more or less.
But there’s a catch.
The Down Sides
For starters, a second mortgage comes with higher interest rates compared to your first mortgage. That’s because the second lender is not entitled to more collateral than the first lender. That means when your home gets into foreclosure, the primary lender has the right to get its money first before the second lender does.
It’s essential you look twice before you leap. First and foremost, if you’re in need of huge cash and you think a second mortgage is the best option, talking to an expert is highly recommended. A competent home loan broker should bid you well.
Remember a second mortgage is a loan on top of a loan. It’s complicated and you may not be in a good position to spell out the in and outs of the transaction. Mortgage brokers are experts in the field and as such they can give you a clearer picture before you decide, allowing you to weigh in your options better.
Know that a second mortgage is unlike a refinance. It’s another loan altogether. That means you will have to pay two monthly mortgage payments.
On the other hand, a refinance allows you to choose a new lender, replacing your primary loan with a new loan. With refinance, you get a fresh set of terms courtesy of another lender. Still, you will have to pay monthly payments.
A second mortgage can keep you on the ropes. That’s so true if you’re living from paycheck to paycheck. When work stands to a still as many have experienced today with the virus wreaking havoc on the economy, you could have your precious abode foreclosed.
It’s definitely a risk. But it can get you to a better place too. In the movie, Joy was able to use her second mortgage well, even after being duped by her suppliers. Then again, as they say, if it’s a high risk, it also comes with a high reward.
Who knows? You might even be able to build a business empire based on your ingenious mind. To make everyone drool in envy.