Should I Take Out a Second Mortgage on My House?

Should I Take Out a Second Mortgage on My House?

 

 

You’ve probably heard about people taking out a second mortgage on their house when they have a sudden need for extra money. But what are second mortgages, and are they worth the risk?

 

A second mortgage is exactly what it sounds like: another loan on your home. In other words, if you already have a hard time making the payments on the first loan, you absolutely should not take out a second one!

 

In some ways, a second mortgage is like any other line of credit -- you should only use it if you really have to. In other ways, though, a second mortgage is much more dangerous. After all, if you find that you cannot make your payments, you risk losing your home.

 

Of course, there are situations where you really need the extra money a second mortgage can provide. You may also want the money in order to make improvements to your home, which will raise the value and allow you to get the money back out of it when you sell. Consider your options carefully before making a decision -- taking out a second mortgage has its drawbacks, so unless you really need the money, it may not be worthwhile.

 

 

Higher interest rates: If you default on your loans, the second mortgage is also second in line to get repaid when the house is sold. To make up for the risk of never getting paid back, the interest rates on a second mortgage are considerably higher than what you would see on first mortgage.

 

Second mortgage fees: Like buying a home, taking out a second mortgage has fees involved. These may be considerable, so find out approximately how much you’ll have to pay in fees, and decide whether it is truly worthwhile to take out that second mortgage.

 

Risk of losing your home: This is so important that it deserves another mention. Don’t risk your home unnecessarily! If you think you might have a problem paying on two mortgages, and you really don’t need the extra money, don’t take out the second mortgage. The last thing you want is to lose your home and earn a big, black “foreclosure” mark on your credit report.