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Second mortgage: A useful investment tool

BY TAMEKA GORDON Assistant business co-ordinator

Sunday, March 24, 2013

THE equity built up in real estate could provide an avenue for further wealth creation by way of a second mortgage.

Depending on one's financial comfort and ability to repay, borrowing against your real estate assets could facilitate "debt refinancing, seed money to start a business, or even capital to invest in other real estate opportunities," Jamaica National's Earl Samuels told the Sunday Finance.

He explained that second mortgages basically allow owners to leverage the equity they have built up in their property to access financing that may assist with even emergency situations.

COK Sodality Co-operative Credit Union's credit manager Vevine Cameron, shared Samuels' view.

"Instead of struggling with debt management, a second mortgage may be the answer to helping you sleep better at nights," she suggested.

For her, there may be need for a shift in how financing mechanisms of this nature are perceived.

"Many people see them as risking a hard-earned collateral, and are therefore weary of taking a loan against their home. but assets should be made to work for us," she reasoned.

To minimise the risks involved to both owner and lender, mortgagers typically stipulate the level of exposure the real estate asset will face.

"As far as JNBS is concerned, second mortgages are possible on residential properties where the aggregate of the loans (both the first and second mortgages) do not exceed 60 per cent of the current market value of the property," Samuels said.

The borrower also has to satisfy normal lending procedures, as well as seek the approval of the first mortgager before the deal can be completed.

In addition, the borrower will also need to obtain valuation and surveyors reports as well as stand the cost of fees such as commitment, processing and legal fees, which typically are a percentage of the loan amount.

"The advantage is that you can use the equity in your home in your bid for wealth creation," Samuels reasoned, adding that the property owner will still have unused equity to cushion any eventualities that may occur.

As with any other financial decision, however, realtor Anya Levy cautioned that advice be sought and owners ensure they are able to service the loans since one faces the risk of foreclosure if the loans cannot be repaid. Samuels agreed.

"Homeowners need to ensure that the purpose for which the money is being borrowed will afford them a lower monthly payment and/ or an investment opportunity that will lead to additional income," he said.