What is a Second Mortgage?
Basically, a second mortgage is using your home equity as collateral for a loan. Banks and lenders typically call this a home equity loan. The amount you are able to borrow on your home will depend on how much equity is in your home. This is calculated by estimating the market value of the property and subtracting the payments made towards your first loan so far.
Why Get a Second Mortgage?
A second mortgage can be used for anything from funding a child's education to making repairs on your home. Some people even use the cash to start a business. However, if you are going to take on additional debt, it should be for something worthwhile. For example, you probably don't want to take out a second mortgage to go on vacation. Those types of purchases are better to slowly save up for. Another option for taking out a second mortgage could be to avoid Private Mortgage Insurance.
1. Tax Deductions - Mortgage interest of up to $100,000 of the principal for married couples and $50,000 for singles is deductible on your tax return.
2. Liquidation of Equity - By taking out a second mortgage, you have the ability to liquidate the equity in your home. If you're on the verge of bankruptcy, you can get access to cash in order to pay off high interest loans and back taxes.
3. Lower Interest - The interest payable on a home equity loan is usually lower compared to that of personal loans or credit cards, because it offers the lender the security of your house.
1. Puts House at Risk - While a second mortgage does provide you with the cash you want, it comes at the cost of putting your house up for grabs in the event that you cannot make the payments.
2. Upfront Fees - In order to take out a second mortgage, you have to pay for an appraisal on your home, loan origination fee and other legal fees associated with an ordinary loan. Although there is a lower rate of interest, there are other costs to consider.
3. Debt Management - A second mortgage is not the answer for everyone trying to get out of debt, especially those that have a rough time managing debt. You have to fix the root of the problem first; just trading out one type of debt for another isn't going to help.
If you're considering a second mortgage or even just a first mortgage at the Lake of the Ozarks, give me a call at 573-746-7211. When it comes to your financing needs, I'm committed to working with you every step of the way! I'll discuss different options, offer competitive interest rates and back it up with the service you deserve.
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Sr. Residential Mortgage Lender
NMLS #: 493712
2265 Bagnell Dam Blvd, Suite B
PO Box 1449
Lake Ozark, MO 65049