How to get a second mortgage on your rental property

Sounds like getting a second mortgage terrifying

When most of us think back to the long process of buying a home for the first time, it’s hard to imagine why anyone would want to do it. again

In fact, there are a number of reasons to take out a second mortgage:

  • Pay for college tuition.
  • To cover the big expenses.
  • To improve your property.

The list goes on.

To put it simply: this is a really large lump sum that can come in handy.

When it comes to getting one, it will be as difficult as the first time you get a mortgage. But don’t worry, at least you’ve gone through this process once before!

Start by weighing the risks of a second mortgage

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When considering taking out a second mortgage on a rental property, consider the following very real risks:

  • You will increase your debt. When you take out another real estate mortgage, you increase your outstanding obligations. As a result, you are likely to experience an increase in financial stress.
  • The second mortgage gives the lender the right to return your property if you cannot repay the loan.… If you are in doubt about your ability to repay the loan, you may want to look for another way to access the funds. For example, an unsecured personal loan can provide you with the funds you need without the threat of losing your rental property.

More details: Unprotected Vs. Secured Loans: What’s The Difference?

Think about what type of second mortgage you want

The right second mortgage for you will depend on the reason Why you need funds.

Home Equity Credit Line (HELOC)

The first one is HELOC, or a line of credit secured by home equity. Basically, you can think of HELOC as a line of credit backed by equity that you have built on your rental property. Depending on the capital you have accumulated, you can get a sizable line of credit.

When you take HELOC, you will be able to borrow the funds you need. when you need them… Depending on your lender, you may receive special checks or a credit card for purchases. With this setup, you don’t run the risk of over-borrowing. In addition, the flexibility of quick access to funds is an advantage that cannot be overstated.

In addition, HELOC is a revolving line of credit, which means you can repay the borrowed funds and then borrow the funds again.

For example, let’s say you are approved for a $ 15,000 HELOC. But you’d rather spend just $ 10,000 and get it back quickly. After repayment of the borrowed funds, you can borrow up to 15,000 US dollars. again from the same HELOC.

More details: Need a loan? If you are a homeowner, this is why you should consider HELOC

Loans secured by real estate

The second option is equity loanWhen you get this type of loan, the lender pays off all of the funds at once and you pay off the loan just like you would with a traditional mortgage.

With a home loan, you won’t be able to withdraw more funds along the way. Instead, you will simply pay the remainder continuously.

The right option for you will depend on the reason you need funds and whether you need long-term access to funds.

More details: Home equity check: everything you need to know before taking out a home equity loan

Find the right lender

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Once you have decided on your preferred type of mortgage, it’s time to choose the right lender. At this point, you will have several options to choose from.

Direct Lenders

A direct lender is a bank or credit union offering mortgages directly to borrowers. There are no intermediaries in this process, so there will be no comparison of ratings. The terms they give you are the terms they give you.

You will need to fill out a full application form (or take advantage of the prequalification options) to get an idea of ​​your rates from each individual lender, which can be time consuming.

For the complete process of finding the best direct lender, check out our article: How To Find The Best Mortgage Lenders On The Internet

Mortgage Brokers

The middleman I was talking about is a mortgage broker.

It is an independent organization not tied to a specific mortgage company. They can help you find the right lender … for a price. Usually the borrower pays a small percentage of the loan amount (on average 1-2%).

Whether this option suits you, you will find out from our article: Should you use a mortgage broker or a bank loan officer?

Comparison platforms

Comparison sites allow you to … well, compare your potential rates for several different companies in one place. Also, your credit score is not asked, so you won’t see a word in your report.

I amit is definitely worth giving a comparison of shopping sites such as Credible chance. Even if you don’t find a suitable option, you will at least find some source numbers to start searching.

Finding the right lender is the biggest hurdle. Once you find a lender willing to work with you on fair terms, it’s time to dive into the paperwork.

Unfortunately, the lender will most likely have to process the documents for a long time. This will remind you to close your original mortgage (hooray). And with that, you will need to provide most of the same information.

More details: What to Expect When Closing a Home

Pros and cons of getting a second loan for renting real estate


  • The freedom to use the funds as you see fit. Unlike a traditional mortgage, you can spend the proceeds from the second loan at your discretion. You can use the funds to cover a down payment on other properties for your portfolio, or to cover more personal expenses, such as a wedding or paying off a credit card debt.
  • The second loan is not tied to your primary residence. Every time you take out a second loan, you run the risk of not repaying it. Of course, no one takes out a second real estate loan with intent to default. But if you run into economic hardship that is preventing you from meeting your second loan, the best hope is that you will not lose your personal home.
  • The possibility of obtaining large loan amounts. Depending on the amount of capital you have created in the property, you may have access to a significant amount of credit. The rules differ depending on the lender, but you can get up to 90% of the value of your property as a second mortgage.


  • Higher interest rates. The second real estate rental loan will be issued at a higher interest rate than your main loan. This is because lenders take more risk when funding a second mortgage (if you are filing for bankruptcy – your first mortgage will be paid off in the first place with whatever collateral you have).
  • Increased debt burden. The downside of increasing debt is obvious, but it must be taken into account. When you take on more debt, you slash your monthly budget. Make sure you can afford the monthly payments before signing up for the dotted line.
  • You will need a good credit rating to secure the best rates. According to some experts, you will need a credit rating of at least 620 points to get such a loan.… This means that those with poor credit standing may have to seek funding elsewhere – or settle for outrageously high interest rates.
  • You can only deduct tax interest payments under certain circumstances. You should use your HELOC or home equity loan for home renovations or other rental-related business expenses if you want to deduct interest when you pay taxes. Therefore, if you use HELOC to pay for your child’s suspenders, you cannot claim any deductions for the interest you paid.

What are the alternatives to a second home rental loan?

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If you are not prepared to take on the risks it takes to get a second mortgage on your rental property, there are several more ways to cover the costs you face.

Here are some good options:

  • Refinancing when cashing out… If you have significant capital built up on your property, then cash-in refinancing can give you the money you need without getting a second mortgage. Instead, you replace your existing rental mortgage with a new one.
  • Personal loan Regardless of the amount of capital you’ve built up in your rental property, an unsecured personal loan can provide you with the cash you need. The best part is that you don’t have to risk any assets.
  • Credit cards… Of course, accessing a high-interest credit card can lead to more problems than you solve. But if you need quick access to funds, it can help you solve an immediate financial problem.

Take time to weigh your options. As you move forward, the consequences of any loan will affect the future of your finances.


Investing in real estate is a rewarding way to get rich. Plus, your portfolio can provide access to cash in the form of a second mortgage along the way.

But getting a second mortgage is not a process to be rushed to (remember how you did it the first time?).

While you will have two solid choices, HELOC and home loans, these loans have higher interest rates and you will need a good credit rating to even qualify for them.

Make sure you take these points into account before you get down to business.

Do you want to invest in real estate? Learn more about this wealth-enhancing strategy today.

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