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What to Think about when getting a 2nd Mortgage

Posted by  on May 10, 2010
 
If you're a homeowner and you find yourself a little strapped for cash, it seems like everyone is more than willing to give you the funds you need to get your financial life back on track. With the introduction of the second mortgages and home equity loans, it seems like everyone now has a chance to finally dig themselves out of financial troubles and start building their credit as well as their financial life back up again.

Why Do You Need It?

By using the equity you've already built up in your home, you can borrow money against the different between the value of your home now and how much you currently owe on the home. This allows you to use the difference to pay off a number of other bills or consolidate debts that you have outside of your home payments. If you have a child going to college or you have a lot of credit card bills to pay, you can use this money to get those bills taken care of. You can also use the funds to help with remodeling or renovating your home to increase the value even further.

What's great about the home equity loan is that you can get this agreement without having to use a high interest credit card to pay down these kinds of bills. This allows you to save money and to still get the things you want for your life.

Are You a Good Match?

The main consideration for a second mortgage is not whether you need it or not, but whether you've built up enough equity to make it worth your while. Your home needs to have increased its value since you initially bought it, so if you haven't seen an increase in the local housing market or you haven't paid down the principle very much, you might not be a good candidate for this kind of mortgage.

In addition, what you use the money for is going to be important as you will want to use it wisely instead of simply getting the money for no good reason at all. This money is 'used up' after you get a second mortgage and it will take a long time to build up more equity in your home to do it again.

The Pros and the Cons of a Second Mortgage

There are a number of reasons why it's a good idea to get a second mortgage. First of all, the money that you use can go to a good cause in your life, helping you finish off other financial concerns. This money is very liquid, so if an emergency comes up, you can easily access the money in order to use the funds. This money is much easier to access than a traditional loan. But what most people enjoy about a second mortgage is the fact that you may be able to deduct the interest paid off your taxes. This is something that's not available on other loans, so this is a major benefit. However, you will want to confirm this possibility with your tax advisor.

As for the downsides of a second mortgage, since the second mortgage is based on the equity in your home, if you begin to fall behind on the payments, the house can begin to go through the foreclosure process. You also may be prone to a higher interest rate on the second mortgage. But again, since this interest is tax deductible, it may not be a big problem for some.

How to Get a Second Mortgage

The first thing that you need to think about when considering a second mortgage is whether putting up your home for possible foreclosure is worth what you are using the money for.

You will begin the process by having your home appraised to see what its current value is and if you can get a large amount of money in this equity loan. Once you know what the value is, you will want to find a lender that can help you with the second mortgage process. Of course, you might also want to work with your current lender as they might be able to get you a better deal than going outside of your current loan process.

This is a good time for you to compare the offers that you get for a second mortgage to be sure that you're getting the lowest interest rates possible — because in today's market, everything keeps changing from day to day.

If you're in need of some extra cash, getting a second mortgage might be the best choice for you and for your family. Whether you need money for bills, education, or to remodel your kitchen, the equity that you've made in your home should be helping you out — after all, you've earned it by keeping up your investment.

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