What you don’t know about second mortgages

People often get confused when it comes to the second mortgage. The second mortgage is a loan that you borrow keeping your home as collateral. It is called the second mortgage because the loan that you have borrowed during the purchase of your home is your first loan.

The second mortgage is also known as a home equity line of credit which means you can easily qualify for the loan and can use the money for any purpose, the lender just need your home as a guarantee. Generally, people use this loan to finance big expenditures like home repairing, purchase of a second home, educational cost or to pay off any big debt.


Types of Second Mortgage

There are two types of second mortgages: home equity loan and home equity line of credit.

Home Equity Loan – the lender will give an amount in a lump sum that can be paid in instalments every month with a fixed interest rate.

Home Equity Line of Credit – this loan works like a credit card. You have a limit set and you can use it whenever you need to. You pay for it just as if you do for your credit card.

Advantages of Second Mortgage

As mentioned above, you get your second mortgage against your home that means you can get up to 60% to 80% of amount depending on your home value. You can go to any lender and apply for the second loan.

However, remember that your first and second loan would count in total which means whatever amount you borrowed as your first loan would be counted in your second loan. The second mortgage usually hasa lowinterest rate as compared to other debts and that is the main reason many people opt for the second mortgage.

In some cases, people borrow the second loan and pay most of the first loan, which hasa high interest rate. This way they will still have a loan but with lower interest rate. It is not a good idea to use the second loan for holidays or foreign trips, as you would be keeping your home in line.

The biggest benefit of the second mortgage is it is tax deductible. The interest amount that you would pay on your second loan can be claimed when filing for your tax return. The best thing to do is consult your tax preparer and get some ideas on how you can save your money.

Your home is everything for you. There are certain things to keep in mind if you are applying for a second loan. Just like your first loan, if for any reason there is a delay in instalments, your home might end up in foreclosure. So if you think you are ready for the second mortgage, only then apply for it.

The best thing to do is to get a quote from different lenders and compare them. See what fits best according to your needs. The interest rate may vary depending on the lender but be aware of any hidden costs.

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