What does 'standalone mortgage' mean?

If you've ever scratched your head at the term ‘Standalone Mortgage’ or wondered what sets them apart from other mortgages, you're exactly where you need to be.

In today's article, you'll find a quick rundown of 'Standalone Mortgages' 101 and how people are using them to fund their big purchases and emergency expenses.

Definition of Standalone Mortgage

A 'Standalone Second Mortgage Loan' is a second mortgage taken separately from your primary mortgage. It is not secured alongside the primary mortgage but at a different time. This category includes both Home Equity Loans (HELs) and Home Equity Lines of Credit (HELOCs).

4 Features of Standalone Mortgage

Just like their name suggests, standalone mortgages set themselves apart from other mortgage options, and they come packed with features like:

• Flexibility

  One of the standout features is their flexibility. Unlike traditional mortgages, which are typically used to purchase a home, standalone mortgages can be used for various purposes.

  😉Guess what?
  
  Home equity loans are a type of standalone mortgage. They let you borrow money using the equity (value) in your home as collateral. Another type, called HELOC, is also a version of a standalone second mortgage. But instead of getting all the money at once, you can borrow and repay money over time, similar to a credit card.

  
  

• Additional Borrowing Power

  By leveraging the equity in your home, standalone mortgages provide you with additional borrowing power. This can be especially useful if you need funds for significant expenses like home improvements or educational costs.

• Fixed Or Variable Rates

  Standalone mortgages offer the option of fixed or variable interest rates, giving you the flexibility to choose the option that best suits your financial situation.

• Repayment Options

  Depending on the lender, standalone mortgages may offer different repayment options, such as interest-only payments or principal and interest payments, allowing you to tailor your loan to your needs.

Pros and Cons of Standalone Mortgages

From personal experience, I've learned that paying attention to the nitty-gritty details is crucial. It can really make a difference in whether your standalone mortgage gets approved or not. So, let's jump right into the pros and cons together!

✅Pros	Cons❌
They provide you with access to funds without the need to refinance your primary mortgage.	Like any mortgage, standalone mortgages are secured against your property. Failing to make payments could result in foreclosure.
You get lower interest rates compared to other forms of borrowing.	It’s an additional debt on top of your primary mortgage, and there are chances it could strain your finances if not managed carefully.
Depending on how the funds are used, the interest on standalone mortgages may be tax-deductible, (For eg- When you use a HELOC for home improvement purposes, you will get tax benefits).	Just like with any mortgage, they also come with fees and closing costs, which can add to the overall expense of borrowing.

7 Use-Cases Of A Standalone Mortgage

If you find yourself confused about figuring out the different ways to use your mortgage, here are a bunch of ideas specifically curated to help you find a way.

• Home Renovations

  Whether it's a kitchen remodel, bathroom renovation, or adding a new room, many homeowners use standalone mortgages to fund renovations or upgrades to their property.

• Debt Consolidation

  If you have high-interest debts such as credit card balances or personal loans, consolidating them into a standalone mortgage with a lower interest rate can help you save money on interest payments and streamline your debt repayment process.

• Education Expenses

  Some homeowners use standalone mortgages to cover education expenses for themselves or their children by paying for college tuition, purchasing educational materials, or funding vocational training.

• Emergency Expenses

  In times of unexpected financial need, such as medical emergencies or major home repairs, this mortgage can serve as a valuable source of funds.

• Investment Opportunities

  By using the equity in primary residence as collateral, homeowners can secure financing for investment properties, rental units, or other real estate opportunities, potentially generating additional income or building wealth over time.

• Retirement Planning

  Homeowners nearing retirement age may use standalone mortgages as part of their retirement planning strategy. With this, they can supplement their retirement income, fund travel or leisure activities, or cover healthcare expenses in their golden years.

• Special Occasions

  Did you know? Standalone mortgages can fund special events like weddings or family reunions, letting you make memories without draining your savings.

Linda’s Dream Kitchen: How a Standalone Mortgage Made It Possible

Meet Linda, a homeowner living just a few blocks away from Panama City Beach, FL! Because of her charming house, and her passion for cooking and hosting gatherings, guests and her dear friends keep coming over to her place.

However, Linda desired a stylish and inviting kitchen by adding a few party pieces and lighting to it. Concerned about costs, she hesitated after consulting a contractor. Later, upon thorough research, Linda discovered standalone mortgages.

And with a mortgage broker's help, she assessed her home's equity and applied for a standalone mortgage. Upon approval, Linda secured funds and renovated her kitchen, fulfilling her dream.

How To Obtain A Standalone Mortgage

Once you've clearly defined your needs and the amount required from a standalone second mortgage, next up you should know the process to obtain one, and I'm here to help you every step of the way.

• 1. Know Your Equity

  The first step in obtaining a standalone mortgage is to assess the equity available in your home. Lenders typically require a 20% minimum amount of equity to qualify for this type of loan.

• 2. Check Out Different Offers

  Just like with any financial product, it's essential to shop around and compare offers from different lenders. Be sure to consider factors such as interest rates, fees, and repayment terms.

  Connect with a standalone mortgage lender in your area

  Find here

• 3. Get Your Paperwork Together

  To apply for a standalone mortgage, you'll need to provide documentation such as proof of income, property valuation, and information about your existing mortgage.

• 4. Apply

  Once you've chosen a lender, it's time to formally apply for the standalone mortgage. Be prepared to undergo a credit check and provide additional information as requested.

• 5. Review, Close & Receive Funds

  If your application is approved, you'll go through the closing process, during which you'll sign the necessary paperwork. Once everything is finalized, the funds will be disbursed to you, and you can start using them for your intended purpose.

Bottom Line: Are Standalone Mortgages The Right Fit?

I agree that when it comes to homeownership and managing finances, finding the right mortgage option is crucial.

For a standalone mortgage, the truth is that you'll only know if it's the right fit once you've devised a proper plan for how the funds will be utilized and repaid. Most importantly, you'll need a substantial amount of equity for approval.

So, do your research, shop around for the best terms, and understand your use cases of the funds!