If you are contemplating a second mortgage it would be in your best interest to weigh the pros and cons to ensure this is the best option for your own situation. A second mortgage can be a great aid in some situations; however, it can also be detrimental if you do not realize what a second mortgage means or the consequences. In most cases, a second mortgage can be tax deductible and can be used for whatever you desire: however, if you default on your loan, you can lose our home.
There are benefits for pursuing a second mortgage which include consolidation of debt, tax benefits, giving you the money to make valuable home improvements, and good interest rates. Of course, the money you borrow on your home can be used for any reason, but do you really want to take the chance of losing your home to go on vacation or purchase a new car?
How You’ll Use the Money
One of the main reasons people choose a second mortgage is that they consolidate their debt and receive better interest rates. The money from the second mortgage can be used to pay off high interest rate credit cards and other debt and only have this payment instead of all the others. Other home owners use a second mortgage to make home improvements that will give their home more value. Of course, you can also obtain a home equity line of credit which will allow you to use the equity you have built up in your home to do all the improvements you desire.
Now, that you know a few of reasons that a second mortgage might be best in your situation, you should also know the cons of this type of loan. There are risks involved. The number one risk is that you can lose your home if you default on the loan. There are costs involved in taking out a second mortgage just like the ones you had to pay when you first purchased your home which can include loan origination fees, application fee, survey costs, appraisal fee, title fees, and fees for inspecting the home, insurance on the home and mortgage insurance. In many cases, lenders will include additional costs if you make payments early.
Before obtaining a second mortgage it would be best if you sit down and write out the reasons you want the loan. Then you must do some figuring to ensure that you can make your payments in a timely manner and learn if the lender will charge extra if you pay off the loan early. Remember to always make a decision on your second mortgage after thoroughly going through your own advantages and disadvantages.