Many people when funds are short wonder if a second mortgage will give them breathing room. A second mortgage may be a good option but is also a decision you should consider heavily before signing that dotted line. A second mortgage is nothing more than another loan taken out on your home. You will be able to borrow money on your home through the 2nd mortgage which will give you a lump sum of money that will need to be repaid just like your original mortgage with a fixed monthly payment.
The Pros of a Second Mortgage
The money you borrow can be used for anything you desire which is the main reason many people choose this option.
Consolidate your bills is another reason that a 2nd mortgage is used as you will be able to pay off some of your debt and only have certain bills left to pay every month. Some individuals pay off credit cards or other loans with the money they receive.
To make home improvements, remodels, or buy new furnishings for the home is also a reason many families opt for a second mortgage. The money can be used to add value to the home which will certainly help if you plan to sell the home in the near future.
Purchase expensive items with cash such as a vehicle. Instead of going into debt with a car loan, many people obtain a second mortgage so they can pay cash for a new vehicle and only have to pay a monthly payment on their home.
Some parents take out a second mortgage to pay for their son or daughter’s college education. This will help your child as they will not have to get a student debt and be in debt for years to come in order to obtain a quality education.
Some even use the money for fun instead of using the money for practical purposes such as taking a family vacation.
Cons of a Second Mortgage
Interest rates are often higher with a second mortgage than the original loan, so the payment will be more each month.
You will have another monthly payment on your home as you will be paying two mortgages instead of one. This means you will need to ensure you have the extra money each month to make two payments.
The worst case scenario is that you are putting your home in danger of foreclosure if you cannot repay both mortgages. You are using your home as collateral for the second mortgage. If you get behind in the monthly payments, the lender can take the home to pay off the loan.
To learn more about second mortgage visit firstandsecondmortgages.ca.