2nd priority loan
– achieve a lower interest rate by
refinance expensive small loans
Not all debt should have a 25-year long term, and in some cases a 2. priority loans can be a good solution. Even if the interest rate is low by refinance small loans into the mortgage, there will still be a lot of money over time.
When is a 2nd priority loan a good choice?
2. priority loans are relevant if you are going to collect expensive small loans, car loans, loans to delete payment notices or want to borrow money for renovations or a project you want to pay off in a shorter time. The loan amount is usually quite low and the value of the property is good.
This is a good option if, for example, you have different credit cards or consumer loans where you want to combine these in order to be able to pay off the loan faster and at the same time achieve a much lower interest rate. Most consumer loans often have an interest rate of around 11-14% and most credit cards have between 19-23%. A 2. priority loans have around 5.75-8%.
Four different credit cards with a balance of 50,000 on each, with an effective average interest rate of 22.91% cost approx. NOK 5,389 every month for 5 years, total interest cost NOK 122,497
By combining into one loan of NOK 200,000, we show you a couple of examples below:
Loan example consumer loan: A loan of NOK 200,000 , with a repayment period of 5 years , costs NOK 4,337 per month. The nominal interest rate is 9.99% and the effective interest rate is 11.18% . The loan then includes an establishment fee of NOK 995 and an installment fee of NOK 45 per month. The loan cost is NOK 60,255 and the total to be paid back is NOK 260,255 .
Loan example 2. priority loan: A loan of NOK 200,000 , with a repayment period of 5 years , costs NOK 3,917 per month. The nominal interest rate is 5.75% and the effective interest rate is 6.74% . The loan then includes an establishment fee of NOK 1,500 and an installment fee of NOK 45 per month. The loan cost is NOK 35,028 and the total to be paid back is NOK 235,028 .
Here you can see that the difference between these two loan types results in a saving of 60,255 – 28,392 = 31,863 saved. The difference between the interest on a credit card (NOK 122,497) and a 2. priority loan (28,392) is a total of NOK 87,469 saved.
What is a 2. priority loan?
A 2 priority loan is a mortgage you take out in addition to the mortgage you already have. The bank that lends 2. priority loans take collateral in the available value between the current mortgage and 85% of the home’s value. This can be 2 different banks, or the same one you already have. You will then have 2 mortgages to service, but preferably a shorter term of the 2nd. priority loan. If you default on your loans and there is talk of a forced sale, the bank that has 2. priority loans could claim their money back after the bank that has first priority has been repaid its loan.
How much does a 2. priority loan?
It is a higher risk for the banks to offer a 2. priority loan and therefore this is priced higher than an ordinary mortgage, but not to be much higher. You must also expect a fee for establishing the loan and registering the mortgage.
We at Eiendomsfinans help you map the entire debt picture. We have a pleasant conversation with you so that we can plan which solution suits you best.
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