Should You Get a Second Mortgage?
A second mortgage is simply a lien against a home that is equal to or higher in value to a first mortgage or even a second loan. Also called second lien holders, the second lien is not subordinate to either the first or second mortgage.
The second mortgage is typically riskier for financial institutions and therefore generally comes with an increased interest rate than other first mortgages. The increased interest rate is what makes second mortgages the most expensive type of loan. However, if you’re looking for an easy way out of your financial trouble, you can always refinance your first mortgage and get a lower interest rate. Here’s why.
For every one percent decrease in interest rates, the payment period becomes longer. This means that if your first mortgage came with an eight percent interest rate and you got a second mortgage with six percent, you would be paying out more over the life of the mortgage and your monthly payments would be larger than before. In addition, if your first mortgage was fixed for thirty years, you will pay more money over the life of the mortgage because you are paying for thirty years of income instead of the initial term of fifteen years.
So, with all this in mind, why do people still get second mortgages? This is a great question, but if you do your homework you can find answers to it. Many people are concerned about how their second loan will affect their credit score.
The truth is that interest rates on second loans are usually tied to the market instead of the bank. Therefore, the rates that you will pay will be determined by the state of the economy and what lenders will be willing to offer at that time.
Because interest rates are tied to the current state of the economy, if your home’s value decreases, the loan you have for your second home will be lower and you will be able to make your monthly payment on time. On the flip side, if your home’s value increases, the interest rate you will be paying on your second loan will be higher and you will have to pay the full amount in order to get your loan paid off.
The second mortgage can also provide a lot of tax advantages, as the amount you are paying as payments on the loan will be tax-deductible. on your income taxes and that will be helpful to you if you want to put some of the money back in your savings account to build your nest egg.
The only downside to getting a second mortgage is the additional burden of paying higher interest rates. If you can pay off the loan on time, then these added costs won’t really be an issue.
Secondly, if you plan on buying a home in the future, you should consider getting a home equity line of credit. You can use it as a tool to finance your dream home. If you don’t have a home equity line of credit, you may wish to refinance your first mortgage. Your next step in planning for the future will be to take out a second mortgage to supplement your first mortgage.
The best way to go about getting a second mortgage is to borrow money against the equity in your home. By doing this, you are putting money down on a home you hope to purchase and you can use this cash to pay off your second mortgage. as well as other debt. With this option, you will only have to pay off the debt you have taken out and you don’t have to worry about your existing debts.
The amount you can borrow against your home for a second mortgage is dependent upon the value of your home. The bigger the home and the higher its value, the larger the amount you can borrow. The key to getting approved for the loan is finding a lender that has good rates.
Finally, you can always go for a refinance that provides you a better interest rate than your first mortgage. This means that you can keep all your existing debts from your first mortgage and you can make the new interest rate lower by paying off the old debt.