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Is A Second Mortgage Good For You?

Many people have a first mortgage on their house that they took out when they purchased the house or that they did a mortgage refinance on at some point in time.  However, many other people also have a 2nd lien on their homes as well.  You may be wondering if a second mortgage is good for you. 


There are many reasons why people consider taking out a second mortgage.  For some, it is because they need to do some serious remodeling, which in turn will increase the value of their house.  For others, it could be that they need some cash for serious medical bills or for other things.  Many people consider this because home loan rates are generally lower than other types of loans, especially in the current market.  There are a number of types of second mortgage liens as well as mortgage refinance options that may work well for your needs.  Getting a home equity loan may be a great option because the rates are low and you can get this type of a loan on a revolving line of credit.  This way, you only pay interest on the amount of money you have pulled out to use. 


Just like with a first mortgage, a second mortgage will require paperwork. The title will need to be searched, an appraisal will need to happen, there may be requirements with income verification, and closing costs will be incurred.  By understanding what your mortgage refinancing and second mortgage options are will help you know if a second mortgage is what you need. 


The traditional second mortgage uses the equity in your house as collateral.  For instance, if your house is currently worth $250,000 and the balance on your first mortgage loan is $180,000, then you have $70,000 in equity.  Because you don't want to pay a PMI for going over 80% of your home value, you could borrow $30,000 of that equity in the form of a second mortgage.  This mortgage is in addition to your first mortgage, and the interest rates will often be a little higher because the lender is taking a higher risk to become the 2nd lien holder on your home.  This loan may be an interest only loan or a fully amortized loan.  It is important that you look at how your payments will work. 


If your credit has suffered and the only way to do a mortgage refinance is to get a bad credit mortgage loan, it may still be worth your while if the interest rates are low and you can lower your payment.  Do a little research and ask your lender plenty of questions as you determine whether a second mortgage is good for you.