Getting a Second Mortgage: Why or Why Not?

If you need extra money for any reason such as paying for college, home repairs, or other expenses, you may want to look into getting a second mortgage. The only way to know if this is your answer is by learning the advantages and disadvantages of second mortgages.

A second mortgage is only another mortgage loan on your existing home. The second loan will not take the top position if you default on the loan, which means the first mortgage would be paid off first in the case of a default before any monies would go to the second mortgage.

Now, comes the question. Why would someone actually consider a second mortgage on his or her home, with or without mortgage backed securities? In most cases, second mortgages are used when you need a large amount of money and you do not have that type of cash available.

If you have quite a bit of equity or your home is valued at a large amount, you may be able to receive a larger amount of money with a second mortgage. In most cases, lenders will also offer more for a second mortgage as loans against a home are normally pretty safe.

Why?

Second mortgages are often used for home improvements, debt consolidation, purchasing another home, avoiding private mortgage insurance, and creating a home equity line of credit. Of course, there are many reasons you may be considering a second mortgage. The sad news is that many individuals do not have good judgment and often obtain a second mortgage when it was not in their best interest. The best reason to obtain a second mortgage is that you have the cash you need for whatever the reason.

Why Not?

The worst reason not to get a second mortgage is that you are risking your home. If you cannot pay back your loan, this can be very devastating. You should always ensure that the reason you need the money is well worth the risk of losing your home

Another downside is that in the majority of cases, second mortgages have higher mortgage rates. The main reason this occurs is that the first mortgage takes priority and will be paid off in the case of default prior to the second mortgage. This means the second mortgage is a higher risk loan. The last "why not" answer is that you may have to pay some high second mortgage fees.

The good news is that if you desperately need a second mortgage you can find one through practically any lending company. Lenders truly love second mortgages and in most cases, you will qualify rather quickly. Of course, the best places to start are with your current lender, but always shop around for the best interest rates and options. A second mortgage can save you when you need money fast, but ensure you can pay back your home loan and second mortgage or you may find yourself in a bad predicament.