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Second Mortgages Explained

2nd mortgage

      A second mortgage is basically a second charge or lien against the  title of your home.   Before HELOC's (Home Equity Line of Credit) became  popular, a second mortgage would   be the only choice for debt  consolidation or other major purchases if you needed access to   the  equity in your home and you didn't want to break your current mortgage.

Second mortgage interest rates are generally higher than first mortgages because there is a greater risk for the lender if there is default on the mortgage but this cost could be saving you money if you are unable to be approved for a HELOC or able to refinance your current mortgage.  A second mortgage interest rate can be anywhere from five to twenty percent depending on the borrowers credit rating and ability to repay the loan.

Some instances where a second mortgage may save you money could be:

1. Where debt consolidation is needed.  the average credit card is charging nineteen to twenty one percent where a second could be as low as five or six percent.

2. Need for large amount of cash quickly without a lot of hassle

3. Saving on high ratio mortgage default insurance premiums.  In certain situations If you want to avoid paying premiums because you do not plan to keep the home long a second mortgage can be used and will save money.

The downside of a second mortgage is using your home as collateral, if monthly payments are not paid as agreed (like your first mortgage), you do stand the risk of  being foreclosed on.  As with any financial decision, a second mortgage should be entered into with full understanding and disclosure.