In the state of today’s economy, many people are desperate to find ways to make ends meet. From bill payments and home renovations or upgrades, to being able to pay for their children’s college educations, people are looking in every direction to make these things happen. For these reasons, some have even contemplated taking out a second mortgage on their home. If you are considering taking out a second mortgage on your home, it is important to understand the pros and cons involved with the act of taking out a second mortgage on your home.
The pros of taking out a second mortgage on your home are typically what sell people on the idea. Lower interest rates are usually given on second mortgages. However the pro of the lower interest rate can also be flipped as a con working as a benefit to the lender.
As the lender receives more security in the transaction, the lower interest rate is a hook used to get that consumer sold on the idea. A lender has more security in a second mortgage due to the fact that if a consumer defaults in paying the second mortgage, the house becomes their property. In essence, you are using your home as collateral if you take a second mortgage out.
The other pro of taking out a second mortgage on your home involves tax breaks. $100k in interest from your second mortgage can be deducted making it a more financially viable decision when compared to a personal loan.
Now that we have discussed the pros of taking out a second mortgage on your real estate, we will take a look at the cons. The cons involved with second mortgages are pretty self explanatory as they relate to the debt raised by the consumer doing so. Unforeseen circumstances similar to what a great deal of us are currently experiencing are a prime example of that risk. Losing your job or any other financial source can translate into losing your home as the second mortgage is often secured to that home. This is one of the factors that played into the foreclosure crisis that we are going through today. That is why subscribing to a home mortgage protection insurance plan may be necessary for the well-being of your home as well as for ensuring the preservation of your financial state.
Second mortgages are risky despite the pros associated with taking one out. One must weigh the pros and cons as with any serious financial decision, and it is definitely not one to take lightly. I would suggest checking all of your available options including personal loans before you take on the possible financial burden that taking out a second mortgage on your home entails.