Thinking About a Second Mortgage?
When a Second Mortgage Makes Sense
If you’re thinking about a second mortgage, you’re not alone. Each year thousands of people will take out second mortgages for their financing needs. However, that doesn’t necessarily mean a second mortgage is right for you. Before taking out a second mortgage, think about what you’re taking it out for.
What a Second Mortgage Is
A second mortgage is a mortgage against the equity in your home. When you take out a second mortgage, the finance company places a lien against your home. Taking this into consideration, it’s important to ensure that the reason for the second mortgage is in accordance with the importance of the decision.
Taking Out a Second Mortgage for a Car
Many times you’ll see finance companies touting that you can get an extremely low monthly payment if you take out a second mortgage to finance your next car purchase. The problem is you’ll be paying for the car for the term of the second mortgage, which could be 30 years. Considering the car probably isn’t going to last you that long, using a second mortgage to finance a car purchase probably isn’t a good idea.
Taking Out a Second Mortgage for Vacation
Finance companies also tempt you to take out a second mortgage to finance a luxury cruise or some other mid-winter or summer vacation. But you have to ask yourself, is the vacation you’ve been dreaming about really worth a lien on your home? Probably not. Because of this, it’s usually not advisable to take out a second mortgage for a vacation-related need.
Taking Out a Second Mortgage for Debt Consolidation
Taking out a second mortgage to consolidate your debt may or may not be a good idea. If you have no other options and your debt is totally out of control and your interest rates are astronomical, a second mortgage may be your best bet. However, if you have other options and you can manage your debt without mortgaging your home a second time, you may want to look elsewhere for your debt consolidation needs.
A Second Mortgage for Home Improvements
If you’re ready to make additions or improvements to your home, a second mortgage can be a great way to finance those improvements. Because the improvements will directly affect the value of your home, it’s feasible to use a second mortgage as a means of financing those improvements.
While a second mortgage may not always be your best bet when it comes to your financing needs, there are instances where it makes sense to take out a second mortgage and when a second mortgage can pay for itself.