Can You Have Two Mortgages on One Property? Here’s What You Need to Know

How many mortgages can you have? 

One of the first questions that might come up when considering multiple mortgages is "how many mortgages can you have on one property?" Normally, a homeowner will take out a primary mortgage to purchase a property. However, they may find themselves in a situation where they need additional financing, leading to them considering whether they can have two mortgages on one property. 

A second mortgage is another loan that is taken out against the equity of your property. Equity refers to the difference between the current value of your property and the amount you owe on the primary mortgage. Equity is a big factor in determining how much mortgage you can have when taking out additional financing. 

It’s important to understand that whilst having two mortgages is possible, lenders are often very cautious. A second mortgage could increase your risk of defaulting on repayments, so the lender will need to ensure that you meet their strict criteria. 

Eligibility criteria for getting for a second mortgage

If you’re considering getting a second mortgage, it’s crucial that you meet specific eligibility criteria and understand how to get a mortgage in Dubai. Lenders will look closely at your finances to determine whether you qualify for another loan. Whilst the specific criteria may vary by lender, they will typically evaluate the following factors: 

• Equity in the property: the most important factor is that you have equity in the property. If you do not have any equity, you effectively have nothing to borrow against. Lenders will expect you to have significant equity before they consider approving you for a second mortgage. The more equity you have, the lower risk to the lender and the more money they are likely to be willing to lend to you. 

• Credit score: when considering the question: ‘“how much mortgage can I have”, credit score is another important factor, regardless of whether it is your first or second mortgage. A high credit score indicates that you are a responsible and low risk borrower, improving your chances of being approved for a second mortgage. 

• Income and employment: another crucial part of how to get a mortgage in Dubai is being able to show employment stability and an income that is enough to comfortably meet the repayments. A lender will typically ask to see proof of income and employment, such as payslips, or if you are self-employed they may want to see company accounts etc. 

• Debt-to-income ratio: Your debt-to-income ratio is the percentage of your monthly income that goes towards debt repayments. A higher debt-to-income ratio suggests that you are at higher risk of defaulting on your loans, so a lender will want to see a low debt-to-income ratio to consider you for a second mortgage. 

• Purpose for second mortgage: the lender will probably want to know your reasoning for wanting to take a second mortgage. Whether it’s for home improvements, debt consolidation or to make another investment, having a clear purpose and plan could improve your chances of being approved.

How to improve your chances of getting a second mortgage

Whilst we have established that you can have two mortgages on one property, the strict criteria means it's important to understand how you can improve your chances of being approved. 

It is strongly recommended that you speak to a mortgage broker to understand your circumstances. But, in the meantime, here are some steps you can take to improve your chances of getting a second mortgage: 

1. Increase your equity: paying down your primary mortgage or waiting for property prices to rise will increase your equity, making you a more attractive candidate for a second mortgage.

2. Improve your credit score: one part of how to get a mortgage in Dubai is the lender will check your credit score. A higher credit score can improve your chances of getting approved. Take steps like paying all bills on time, reducing credit card balances and avoiding new debt. 

3. Lower your debt-to-income ratio: You should consider reducing your existing debts, such as paying off credit cards or other loans, before applying for a second mortgage.

4. Show income stability: Lenders will be more likely to approve you for a second mortgage if you can show a stable and reliable income. If, for example, you have just started a new job, consider waiting some time before applying, particularly if you are still in a probationary period. 

5. Get pre-approved: If you’re considering multiple mortgages, you could be wondering: "can you get more than one mortgage pre-approval?" The answer is yes. Getting pre-approved for multiple mortgages can give you a clear picture of how much mortgage you can have and improve your chances when applying for a second mortgage.

Pros and cons of having two mortgages

While there can be benefits to having two mortgages, it's essential to also understand the potential drawbacks. Here’s a breakdown: 

Pros: 

• Access to additional funds: a second mortgage can provide you with access to funds that could be used for purposes like home improvements, property investment or paying off high-interest debts. 

• Potential tax benefits: whilst Dubai is a tax-free environment when it comes to income and property taxes, there may be a circumstance where the interest paid on a second mortgage is tax deductible in the property owner’s country of tax residence. 

• Leveraging property equity: a second mortgage could allow you to use the equity in your property to invest in another property, potentially increasing your wealth

Cons: 

• Higher monthly payments: taking out a second mortgage will increase your monthly payments, which could put a strain on your finances and will leave you with less money to cover other expenses.

• Increased risk: By reducing your equity and increasing your monthly payments, you increase the risk of defaulting on your debt, which could result in you losing your home.

• Interest rates: the increased risk from a second mortgage will often mean lenders will charge a higher interest rate, leading to increased overall costs. 

Potential impact of multiple mortgages on your property and finances

It's important to understand that if you have two mortgages on one property, it could have a negative impact on your finances and the security of your property. Here are some potential consequences to be aware of: 

• Reduced equity: With an additional mortgage, you reduce the amount of equity that you have in the property, which could affect your ability to sell or refinance it in the future.

• Difficulty refinancing: If you have multiple mortgages, refinancing can become more complicated. 

• Negative equity risk: If the property’s value decreases, you could end up with negative equity, where the total loan amount exceeds the property’s value. This could be a very risky situation that can lead to financial difficulties.

• Financial strain: Having a second mortgage increases your monthly repayments, which could put a strain on your finances, particularly if your circumstances change, such as in the event of a job loss. 

Alternatives to multiple mortgages

Given the potential impacts and challenges of having a second mortgage, you could consider the following alternatives:

• Refinance your existing mortgage: instead of taking out a second mortgage, you could refinance your existing mortgage to access additional funds. This approach allows you to maintain one monthly payment and could have better terms. 

• Home equity loan or line of credit (HELOC): these options could allow you to borrow against your home’s equity, without taking on a second mortgage. This could be a more flexible option with a lower interest rate.

• Personal loan: For smaller financial needs, a personal loan could be a viable option. A personal loan would not be secured against your property and can offer lower interest rates than credit cards.

• Savings or investments: If you have savings or other investments, consider using these funds instead of taking on additional debt and the potential risks that come with it. 

Conclusion

Whilst you can have two mortgages on one property, it is not a decision that should be taken lightly. It’s vital that you first consider the potential benefits and risks, as well as your ability to meet the financial obligations that are involved. By understanding the eligibility criteria and taking steps to improve your chances of approval, you can make an informed decision that aligns with your financial goals. 

Whether you're asking "can I have two mortgages on one property?" or exploring "how much mortgage can I have" it's essential to do your research and consult with financial professionals. If a second mortgage isn't right for you, consider alternative options that may better suit your needs. The right choice will depend on your individual circumstances and long-term financial objectives. 

By following the guidance in this blog, and doing further research, you can navigate the complexities of having multiple mortgages and make an informed decision that helps you to achieve your Dubai real estate goals.