Five Things You Need To Know About Third Mortgages
It is common practice to take out mortgages when in need of financial help. Such mortgages include first, second, and at times even third mortgages. While first mortgages are understood by all, second mortgages are a home equity loan which you can take without any need to refinance the current mortgage. Third mortgages allow you to get a loan based on your property value. Third mortgages are essentially claims on a property which are subordinate to the first or the second mortgages.
Qualifications for a third mortgage
As with other mortgages, for third mortgages too, lenders usually look at the stability of your income flow as well as the credit history you maintain. Here, they tend to look at the loan-to-value sum. If you have more equity in your home, chances are you will be qualifying for the third mortgage easily. A strong credit score is also a pre-requisite to qualifying for third mortgages. You may qualify for the third mortgage easily if the same lender is holding your second mortgage as well.
Benefits of third mortgages
A third mortgage gets you additional funds which you can use as per your discretion. You could use them for the renovation of your home or even improve your lifestyle with these funds. Alternatively, you could also use the loan for paying the higher education tuition fee of your wards.
So you may always wonder how much amount you could borrow in a third mortgage. This depends on the property value. The costlier your home, the larger is the amount you could borrow, though it us up to 85% of the total value of your property/home.
Third mortgage defaults
In case you default on your third mortgage, the sum pending towards the third mortgage will be paid once you have completed the payments for your first and second mortgages. Third mortgages are paid in monthly instalments along with the first and second mortgages. In case you default on any of your mortgage payments, you stand the risk of your home going into foreclosure.
Disadvantages of third mortgages
Like all other loans, you would definitely have to pay an interest towards your third mortgage. Not all lenders like to give the option of a third mortgage as from the lenders' point-of-view such mortgages are considered risky. Private lenders are your best bet if you are opting for third mortgages but the rates can be stupendously high as there is very less security involved.
How to assess if taking up a third mortgage will be the right step?
Since the financial situation i.e. debts and expenditures vary from person to person, third mortgages are favourable to only some people. It is important to consult a mortgage broker before opting for such a mortgage as they can handhold you through the pros and cons best suited to your financial situation post an assessment.
If you are considering taking up a third mortgage or if you have any queries or doubts regarding the same we would be happy to help. Do make an appointment!