How Does a Second Mortgage Work for Home Remodeling

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Most homes in America are purchased with a mortgage. If you have a mortgage, you probably have some equity in your property. This is almost definitely the case in 2017 because house values are on the way up. For many years, the second mortgage has been a popular financing tool for homeowners to remodel or rehabilitate their home.

One of the most common sources of the cash to do a home remodel is home equity. Many home owners find that it is the perfect choice for home renovations. This is because you are using part of your home’s value to enhance the value further. As many home improvements increase a home’s value, this can be a great way to improve your finances.

Many home owners find that using equity to boost the value of the home can help them to use the new equity created to pay for what was borrowed. This will only help you when you sell the home, but still, it can be a great move.

Home renovation projects are becoming more common, and about 50% of all home equity loans are used for this purpose. It is true that doing a home renovation project with home equity makes sense, but there are some projects that will pay you better in the long run than others. There also are other factors to consider.

6 Good Reasons to Get a Second Mortgage for Home Remodeling

second mortgage home remodel

Remodeling your home just became more realistic with newly released 2nd mortgage programs that offer quick money for house improvements and more.

Here are some advantages and factors to consider about getting a second mortgage for a home remodel:

1. Return on Investment Can Be High

Some home renovation projects pay you better than others when you sell. Renovating parts of the home that are used a lot tend to pay better than, say, remodeling an office.

For example, some people like to remodel the kitchen first. This project tends to pay off fairly quickly because people spend so much time in the kitchen. A newly remodeled kitchen also helps to get the home sold faster.

Another project that can result in a high return on investment is finishing the attic or basement of the home. Also, many home owners opt to remodel the master bathroom. A typical remodel will cost from $10-$20,000. The average ROI on that project will be in the area of 60%.

There is no question that investing your home equity into a high ROI improvement will help the value of your home in the long run. If you do it right, you can go through the second mortgage process several times. As the home increases in value, you can borrow more money against it to do more renovations.

2. Tax Advantages on 2nd Mortgages

There are some exceptions, but the interest that you pay on a 2nd-mortgage usually may be deducted off of your income for your federal tax return. This may be able to save you thousands of dollars off of your taxes every year!

3. Second Mortgage Interest Is Low

The reason that so many people decide to get a second mortgage for a home renovation is that the interest on the loan is low. The loan is secured by your home, so the bank is able to give you a much lower rate than a personal loan or a credit card loan. Most home owners will never be able to borrow money at such a low interest rate. This helps to keep the payments reasonable. In most cases, the most competitively priced home-improvement loans are second mortgage liens.

Second Mortgage Offers Higher Amounts

Because you are using your equity and it is secured by the property, you usually can get a higher loan amount than on an unsecured personal loan. This allows you to do more home renovation projects. If you want to do a big kitchen remodel, you easily could need $50,000 or even more. This type of money is best acquired with a second mortgage.

Second Mortgage Is Long Term

A second mortgage can be paid back over many years, thus reducing your payments. A home equity loan may be paid back over 20 years or more, while a home equity line or HELOC loan will probably be paid back in 10 to 15 years. Either way, you will save money on your payments.  Get help searching for the best HELOC rates online.

Second Mortgage Is Easier to Get

This will depend upon your credit score, but generally, it is easier to get a home equity loan than your first mortgage. You already own a home that you have been making regular payments on. So, the second mortgage qualification process is generally less onerous the second time around. Many home owners find that they can get their second mortgage closed in just a few weeks.

Most second-mortgage lenders are looking to approve borrowers that have demonstrated a consistent payment history but there are still a few companies that will take bigger risks on home equity loans with bad credit.

A second mortgage is a fantastic way for you to improve your home with a remodel. You can get a lot of money at once, at a low interest rate, and pay it back over many years, so your loan payments are low. It also is quite easy to qualify for, and can really give you a great return on your investment.

Also, rates are low right now and home values are going up, so you may have more money in your property than you might think. We recommend that you speak to a mortgage lender today to see if you can get going on your home remodel with a second mortgage. You also can consider doing a cash out refinance to get your home equity. But this is only the best move for the home owner who can get a lower first mortgage rate in the current market environment. If not, a second mortgage is your best bet.

References: Should I Use a Home Equity Loan for Remodeling? (n.d.). Retrieved from http://www.casedesign.com/should-i-use-a-home-equity-loan-for-remodeling/

About Dusty Brazil

CA BRE #01780273- Dusty Brazil is a top ranked Realtor with Pacific Sotheby's International Realty. Mr. Brazil has been selling real estate in San Diego for over 10 years and lived in this coastal community his entire life. Dusty is an accomplished surfer who enjoys writing home buying articles when he is not catching waves.