Many people decide to buy additional properties as investment opportunities and when the price is right you usually can’t go wrong. However, what is the best way to find money for this kind of investment. A second mortgage line of credit might be just the answer. If you already own a home then getting a second mortgage should be easy.
Many second mortgages will offer a credit line that you can keep coming back to in order to get money. At the website Cantonstreetmortgage.com it notes that a second mortgage is tied into the equity in your current property. “In most cases the interest is tax deductible,” the site explains. “Money can be borrowed for home improvement, debt consolidation, financial investments, down payment on another property or car loans.” While not all companies offer the same thing, Canton is one example offering a fixed rate second mortgage that is as low as 8% and up to 125% financing. Second mortgages can also be called junior liens or subordinate mortgages explains Bryan Wilson, a financing consultant with BD Nationwide Mortgage.
Many investors and entrepreneurs use these cash-out investments often. “[They] will often use their properties available equity to provide them with capital for investment,” explains Atlas Mortgage Corp. “A real estate investor can take out a home equity loan or credit line on a currently owned property and then use the proceeds on another property.” Additionally, it is common for entrepreneurs to “mortgage their home’s equity with a second mortgage loan to provide them with start-up or operating capital for the business.”
One thing to certainly keep in mind is that second mortgages always have a higher risk factor and therefore higher rates. Interest rates can also fluctuate on a credit line in this case and it will often depend on how much of the equity is being used from the original property. “The less equity remaining after the second mortgage is recorded, the higher the interest rate,” reports the folks at Atlas Mortgage Corp.
Another important thing to remember when deciding on a home equity line of credit versus the traditional second mortgage loan is that a second mortgage provides you with a fixed amount of money repayable over a specific amount of time. If you need a set amount of money for a specific purpose to buy investment properties a second mortgage line of credit is definitely the way to go.