If you are considering a second mortgage on your home, you should take some time and learn more before jumping into this decision. You should weigh the advantages and disadvantages to ensure this is the best step to take in your situation. The one thing to remember is that no matter how good the opportunity looks, you are still putting your home on the line. If you do not pay back the loan, the lender can foreclose on your home. However, the advantages can easily outweigh the dangers if you can ensure that you can repay the loan.
There are several benefits of obtaining a second mortgage that have greatly helped many homeowners resolve some of their financial burdens. A few of the most popular benefits include consolidating debt, tax benefits, better interest rates, and the opportunity to make home improvements.
Consolidating debt is one of the main reasons homeowners choose a second mortgage. The money you receive from a second mortgage can basically be used for any reason under the sun; however, choosing to spend the money frivolously is certain not a good reason to put your home at risk. On the other hand, if you can reduce your debt such as pay off high interest credit cards then you may actually have more money which can relieve your financial debt and give you peace of mind.
The tax laws may allow you to deduct the interest on the second mortgage which can greatly help homeowners when it comes to the taxes they may owe.
If you have been living in your home for years and you would love to update your kitchen, bath, paint the exterior, purchase new carpet, or even add a room or an enclosed porch, a second mortgage will give you the opportunity to give your home a face lift.
You may be able to receive better interest rates and in the long run save more money. You will need to do some math to ensure that the end results will actually provide you with extra money instead of causing you to have more debt.
Choosing the type of second mortgage you desire is also very important. There are two main options which are closed end mortgage and home equity line of credit.
A close end mortgage is a fixed loan amount that is required to be repaid in a specific amount of time. A home equity line of credit is one that allows you a revolving line of credit. The amount you can receive with this type of loan is normally 75 to 85 percent of the appraisal value of your home minus the balance left on your original mortgage loan. With the equity of credit you have the option of withdrawing funds as needed as long as you have equity in your home. However, if you only need a specific amount of money, then the close end mortgage may be your best option. On the other hand, the equity line of credit will allow you to take the funds as needed such as upgrading your kitchen and then at a later date receiving funds to purchase carpet.