2nd-Mortgage

If you are a homeowner and in need of some extra cash, one possibility you could consider is getting a second mortgage. If the present value of your house exceeds the amount you paid for it (your mortgage total), then you have equity that can be used to borrow more money. This is basically a loan that is secured on your house – and is sometimes termed a further advance.

Many people commonly use second mortgages for such expenses as home improvements, the purchase of a second or vacation home and to consolidate other debts with a lower interest rate. Of course, you may also be able to use the proceeds of your second mortgage for other options but you should always keep in mind that you are putting your home at risk for getting a second mortgage and be sure you can justify the risk for that purpose.

One of the major disadvantages of getting a second mortgage is that the interest rate will usually be higher than your first mortgage. Lenders insist on higher interest rates because they understand they won’t be the first in line in the event that you default on the loan and they need to protect their assets, so they do this with higher interest rates. Of course, the rates are typically lower than what you could obtain with any other type of loan and much lower than credit cards.

If you are paying a comparatively high rate on your second mortgage, you should examine the possibility of getting a HELOC to refinance it. You could save substantial money if your current interest rate is high enough, and you could use some of the money to improve your property, thereby further increasing its value and your equity. If you pursue this however, make sure you shop around for the best rate. You should also try to negotiate interest rates and the fees you’ll be charged for the HELOC. You could end up in a much better financial position.