It seems as though millions per year are taking out second mortgage loans simply because they need the extra cash. However, while most people will say, ‘don’t do it!’ others will say, ‘it’s a great idea!’ In a way, these loans can be both good and bad but, of course, it depends on the current owner’s situation. So, is this really the ideal solution for your home? Read on and find out the pros and cons of taking out a second mortgage loan.
Pro: The Mortgages Offer a Decent Fixed Rate
Interest is a major issue for a lot of people and for most they cannot afford to have extremely high interest with their loans. However, when you look at second mortgage loans you don’t actually have to worry about high rates of interest. Most of the mortgages enable you to get a decent fixed interest rate which is ideal to say the least. This will help most homeowners save quite a lot of money per month, potentially hundreds, which can be used for a lot of other things including improving the home or putting it towards the repayment. That’s why second mortgages are highly sought after.
Pro: No Private Mortgage Insurance
Mortgage insurance can end up costing a homeowner thousands per year and it’s a lot of money to say the least. However, when you look into second mortgage loans you can potentially avoid private mortgage insurance which is fantastic! Being able to avoid insurance enables you to save a little money which can always come in use. What’s more, paying private mortgage insurance along with the monthly premium can be very costly, potentially a few hundred so saving something is better than nothing.
Con: A Sale in the Future Can Be Tricky
Let’s be honest, selling a home is never easy and when you have a second mortgage out on the home, it can make things far worse. Yes, you might say selling is not an option but what about next month or next year? What happens if you take out a second mortgage and you suddenly decide, for whatever reason, you need to sell the home? A lot of buyers will be put off with the idea of finding a home with two mortgages. Second mortgage loans are great but in a way, they aren’t ideal for every owner, especially if they might be considering a sale one day.
Con: The Potential for Foreclosure
One of the biggest drawbacks for second mortgage loans has to be foreclosure. While you might be able to repay now, what happens when your circumstances change? What happens if your payments are too high or you lose your job? When you take out a second mortgage you run the risk of foreclosing on the home. It’s always a risk to be wary of so that’s something you have to take into consideration today.
Think before You Take out a Second Mortgage Loan
Owning your home is great because it’s yours and you can actually profit from it in years to come—and it’s a great investment for your family too. However, taking out a second mortgage will present some good risks and bad risks. You have to think very carefully about the second mortgage as a short and long-term solution. It’s important to think about whether it’s suitable for your situation now and tomorrow so that you can be sure it’s perfect for you. Second mortgage loans can offer an advantage but you do have to be extremely careful.