Second Mortgage Pros and Cons: What You Need to Know
When it comes to taking out a second mortgage, there are both pros and cons to consider. Here are some of the key things you need to know before making a decision.
Second Mortgage Pros:
1. Can Be Used for a Variety of Purposes
A second mortgage can be used for a variety of purposes, including consolidating debt, making home improvements, or funding a major purchase.
2. Lower Interest Rate Than Other Types of Loans
Second mortgages usually come with a lower interest rate than other types of loans, such as credit cards or personal loans. This can save you money in the long run.
3. May Help You Build Equity Faster
Taking out a second mortgage may help you build equity in your home faster than if you only had a single mortgage. This can be beneficial if you plan on selling your home in the future.
4. May Offer Tax Benefits
Interest paid on a second mortgage may be tax deductible. Consult with a tax advisor to see if you qualify for this benefit.
Second Mortgage Cons:
1. Requires That You Have Equity in Your Home
In order to qualify for a second mortgage, you must have equity in your home. This means that your home must be worth more than you owe on your first mortgage.
2. Requires That You Make Two Mortgage Payments Each Month
If you take out a second mortgage, you will be responsible for making two mortgage payments each month – one for each loan. This can be a financial burden, especially if your income is tight.
3. May Put Your Home at Risk if You Can’t Make Payments
If you default on your second mortgage, you could lose your home to foreclosure. This is a risk you need to be aware of before taking out a second mortgage.
4. May Have a Higher Interest Rate Than Your First Mortgage
Depending on market conditions, your second mortgage may have a higher interest rate than your first mortgage. This could end up costing you more money in the long run.