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Second Mortgages: A Key to Liberation

Posted by  on May 10, 2010
 
Second mortgages can be used to exploit any equity that may have accumulated since your last financing. Using equity to pay off more expensive debts, like student loans, can be a wise move. A lot of money can be saved by taking a second mortgage. Plus, the loan terms can be readjusted to suit your current financial situation that is probably a lot different.

The sooner you finalize your student loan obligations, the better off you will be. Paying off the loan will not only save interests but it will improve your debt-to-income ratio, a factor lenders consider when deciding whether to offer you credit. A second mortgage, also known as a home-equity loan, is a good option for paying off big debts and an array of other possibilities.

Home equity loans will usually have longer terms than student loans, this is a huge advantage. For one, longer terms could lower your monthly payments and improve your debt-to-income ratio. A huge incentive for anyone who can itemize deductions on their federal income tax return is that he will most likely be able to deduct all the interest paid on the home equity loan.

It is important to remember that interest rates for home equity loans are often higher than those of student loans. But whether you qualify to itemize or not, you're allowed to deduct a portion of the interest you pay annually on your student loan so the higher interest rate won’t have such importance and your monthly payments will still be lower.

Student loans are unsecured debt, they are not granted under the pretense of collateral. If you can't meet your student loan payment, the worst thing that can happen is that you'll ruin your credit. Your home secures a home equity loan, and if you default on it you can lose your home. No matter your choice, make sure you can handle the required monthly payment.

Home loans are by nature secured loans. When you request a home equity loan you are offering the property as security for the loan and missed payments will eventually lead the lender to take legal action against the property guaranteeing the loan. The legal action of repossession is always available for the lender to recover what he lent. That’s the main reason why a longer repayment period, lower monthly payments and low interest rates are featured by these loans. The risk involved for the lender is considerably lower as he can recover his money one way or another.

Student loan lenders are very flexible, much more flexible than mortgages. Often, student loan lenders will agree to a loan reschedule if you can’t meet the monthly payments. Moreover, most of these loans come with grace periods that you can request at certain times in order to postpone payment till you recover from financial difficulties. Federal Student Loans though more strict, also offer certain forbearances and other benefits in case someone can’t temporary afford the monthly payments. You should consider all these options before deciding whether to resort to a second mortgage for easing your debt problems.

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