2nd Mortgage vs. Rent Cash In Loans31 August, 2015
Have a property, but looking for cash? Evaluate your options.Property owners often look for second mortgages to achieve further liquidity, or to put down a larger down payment for a second property. But, are they aware that that there are better alternatives available? This particular entry looks at the major differences between a 2nd mortgage loan, and a peer-to-peer loan that is taken against rental income.
Nature of the Loan:
• One of the major differences between second mortgage loans and peer-to-peer loans, are that second mortgage loans are secured. Essentially, the lending institution has a charge against the property, and may activate collateral on the property mortgaged against. Alternatively, peer-to-peer loans are unsecured, and only require an assignment of rent to Monexo, without any collateral on the property itself.
Loan Amount and Tenor:
• At Monexo, tenors for loans range from between 6-48 months, while second mortgage loans can last as long as 30 years. Commonly though, second mortgages, usually carry the duration of 5-6 years.
• Loan amounts for second mortgages are calculated using the market value of the property, taking in to account the loan to value ratio.
• Monexo allows borrowers to borrow up to 48 times their monthly rental amount, capped at $1 million.
Comparing Interest Rates - Absolutely:
• In the most basic sense, second mortgages fall behind the first mortgage (i.e. issuers of first mortgages have first right to the collateral in case of default), thereby making them riskier lending options. Now, that would automatically mean higher interest rates – sometimes, these rates go as high as 35%.
• On the other hand, Monexo’s interest rates usually fall between 7-20%.
Comparing Interest Rates - Relatively:
• Now, some lending companies offer second mortgages on reducing balance terms [see 3F’s (Fixed, Floating, Flat) & Reducing Balance Loans for more information], which mean that they are directly comparable with Monexo’s interest rating, and are still more expensive.
• If these lending companies, however, offer flat interest payment terms on their second mortgage, Monexo’s interest rates would appear to be even more cost effective than before.
On three points of comparison (nature of loan, tenor, and interest rates) obtaining a loan from Monexo is more favorable to the borrower than a second mortgage. That being said, there are more factors which separate Monexo from the rest.
• A distinguishing advantage of Monexo’s is that there are no pre-payment fees associated with any loans, as compared to the high fees charged by other institutions.
• In terms of availability and swiftness, Monexo is unparalleled – loan applications with appropriate and accurate documentation may be processed and funded within 24 hours, as compared with weeks, for second mortgages.
• Lastly, Monexo’s loans are attached with an AIG protection scheme, which grows active in certain situations. Read more here.
If you are a borrower with rental income obtained from property held, and are looking for liquidity to improve your home, fund an education, or purchase more assets, we hope that this post enlightens you on the various advantages that a Monexo loan offers, as compared to other moneylenders.