If you are a homeowner, and find that you suddenly need a large amount of money to pay for some unexpected expenses, then why not consider a second mortgage to tap into the equity of your home?
A second mortgage is a loan obtained after the first mortgage, which is secured by the same piece of property (usually your home). You can determine the equity remaining in your home by taking its current market value, and then subtracting the unpaid balance of the first mortgage. The amount remaining is your equity. There are on-line mortgage calculators to help you figure out how much home equity you have.
Amount of Second Mortgages
Kendrick Kapuna at Aspendance Realty recommends that you should have at least 20% equity remaining in your home before you consider taking out a second mortgage. If you have less than 20% equity, not only is it more difficult to find lenders willing to make the loan, it is also riskier to you. If the market value of your home falls too far, you might find yourself having a very difficult time repaying the second mortgage.
Advantages
Second mortgages can have many different benefits. The funds can be used for:
- Home renovations or improvements
- Major purchase, such as a car
- Tuition for college
- Medical bills
- Pay off credit card debt
- Business capital expenses
The interest paid on a second mortgage is normally tax deductible, be sure to check with a tax professional.
Disadvantages
Second mortgages come with some disadvantages, too:
- Your home is at more risk – non-payment can lead to foreclosure
- Financing fees and closing costs can be very high
- Higher interest rate
Locating a Second Mortgage
Many lenders are offering second mortgages, and the market is very competitive. Shop around to obtain at least three different quites in order to secure the best mortgage deals. Here are some good sources:
- FHA
- VA
- Commercial banks
- Credit Unions
- Mortgage brokers