What are Second Mortgages?
As the economy has slowed down, many people have been forced to take out second mortgages in order to make ends meet. But what are second mortgages? Second mortgages are when you take another loan out on your home. Essentially, your loan is secured by your house and property. It is a way many people have been able to access a large amount of money, quickly. If you go into default, your second mortgage does not have priority, meaning that any money goes towards your primary mortgage first. In a nutshell, a second mortgage can be seen as the equity from what you have already paid off of your home, or from what your home is valued at, at the time of the second mortgage. For second mortgages, your home serves as your collateral.
What can Second Mortgages be used for?
In reality, second mortgages can be used for anything you need money for. Because it is such a large sum of money given very quickly, the possibilities are endless. Many people take out second mortgages for large and expensive home improvements, debt consolidation, home equity lines of credit, and any large debts or emergencies that need to be paid off quickly.
What are the advantages of taking out a second mortgage?
The biggest advantage of taking out a second mortgage is that you will be able to take out a large sum of money quickly, and with relative ease. If you have an emergency, for example, a large medical bill, then a second mortgage can quickly help you cover those bills. Second mortgages can typically be larger loans than normal, which can again be helpful for those who are looking for a lot of money, quickly.
What are the disadvantages?
While there are great advantages to taking out a second mortgage, there are also great disadvantages. Second mortgages put your home at risk, and base the repayment of your loan with your home as collateral. If you cannot pay back your second mortgage, the bank can place your home in foreclosure, and you can lose your home. For many people, this is too great of a risk, and it must be considered by anyone looking to take out a second mortgage. Second mortgages often come with larger, higher interest rates than your first mortgage, although depending on your credit, can be lower than credit union loans or private loans. However, the interest rates are something that must always be considered. There are also very large mortgage fees associated with second mortgages, because of the high risk of foreclosure and default is so high. According to the Huffington Post, people who take out second mortgages are almost twice as likely to owe more than there home is worth, leading to foreclosure, bankruptcy, and worse.
Second mortgages are a useful tool for those in need of fast money, but come along with a set of risks and dangers that must be taken into account for anyone considering taking a second mortgage out. It is highly advisable to contact a financial manager before making the plunge into a second mortgage