Second Mortgage

If you’re in need of additional funds and you own a home, you may have the opportunity to borrow against your home through a second mortgage.

A second mortgage is another name for a home equity loan. The amount that can be borrowed on a second mortgage is typically based on the difference between your home’s current value and your original mortgage principal. This type of loan utilizes your home’s equity to provide you funds for home repairs, school tuition, debt consolidation and other financial needs. For example, if you have a child who’s about to go away to college and you need money for the tuition, a second mortgage can you help you afford your child’s education. If you want to make home repairs or renovate your home, a second mortgage can supply you the funds you need to get the job done. It’s a good way to tap the asset value of your home to meet your investment and budget needs, and helps you avoid incurring high interest unsecured debt like credit cards.

Second Mortgage Benefits

There are some innate benefits to a second mortgage. First of all, since a second mortgage is based on your home’s equity, as a home owner, you have the funds readily available. A second mortgage is a secured loan and is generally easier to obtain than other types of loans.

Also, the interest paid on a second mortgage is normally tax deductible. Not all loan interest can be deducted from your annual taxes. With a second mortgage you can easily deduct the interest you pay on your second mortgage from your taxes.

Second Mortgage Disadvantages

There are some disadvantages associated with a second mortgage that you need to be aware of. For starters, since the second mortgage is being based on your home’s equity, you are putting your home on the line. If you default on payments, the bank can take away your home. Also, interest rates can be higher than a first mortgage, especially if you have a low credit score. A low credit score always affects the interest rate of your loan and the amount that you can borrow.

How to Get a Second Mortgage

If you’ve determined that a second mortgage is the answer to your financial needs, you need to do a few things. You need to make certain that the reason why you’re getting a second mortgage is worth borrowing against your home. For example, if the only reason you’re getting a second mortgage is to purchase a new motorcycle, and you already have two, you need to think if the end result is worth taking out a second mortgage. Also, you need to get your home appraised. A home appraisal will establish the current market value of your home and be the value used to determine the details of your second mortgage. After the appraisal, you need to find a lender. Check with the lender who you used for your first mortgage to see if they’re a good source for a second mortgage. Also look online for second mortgage lenders and resources. You never know where you’ll find the best rate on a second mortgage. And finally, after you’ve compared lenders and made the decision that a second mortgage is the best choice, pick your lender and keep up with your payments. Remember, since you’re borrowing against your home with a second mortgage, you are putting your home on the line.

A second mortgage is a sensible solution to acquiring funds for school tuition, home repairs and renovations, and even vacations and cars. But before you run out and get a second mortgage, you need to weigh the benefits and disadvantages of a second mortgage, and determine if the reason for getting one is worth borrowing against your home.

Deciding between a home equity loan and a second mortgage should not be that difficult a decision. These are two very different things that each have their own benefits.

A second mortgage is the option of choice for those who are facing an emergency situation that needs to be dealt with now. If something has cropped up that requires a large amount of money at one time then this is the perfect solution.

When you are approved for a second mortgage you will receive one lump sum that you can use for anything that you want. You can use it to fix the car, repair the roof, buy a boat or just go on a fabulous vacation.

Once the money you get from the second mortgage is gone, it is spent and no matter how you make your payments, no more money will become available to you, not even if you pay it back more quickly.

A home equity line of credit loan on the other hand is often revolving. This actually makes it quite similar to a credit card. These loans can be used for anything just as the second mortgage can, but anything you pay back above the interest owed will go back into the account and you can use it again when needed.

Home equity lines of credit loans and both of them have terms of up to 15 years. If you sell your home before you have paid the line of credit back in full, you will then have to do so upon completion of the sale. This should not be a deciding factor between a second mortgage or a loan because this applies to both.

The home equity loan option is good for people who like to have that cushion available to them to use on a regular basis.

Of course to get approved for a home equity loan or a second mortgage you will have to have a home that has some value. If you already owe a large amount of money on your home then you will not be able to get approved.

The most common place for one to get another mortgage or a line of credit is the bank. You can make an appointment with your bank as soon as possible and start filling out the necessary forms in order to see if you quality for this type of financing.

If you decide to use the money you get from either of the above options to improve your home you will find that you are actually adding value to it. When it comes time to sell your house and property you could actually successfully ask more for it. In this way you could make money off of choosing a second mortgage or a home equity line of credit.