People get home second mortgages for a nice amount of reasons. In most cases they want to consolidate their debts. When you consolidate your credit cards you can get an interest rate which is much lower than the previous. A lower interest rate will save you more money in finance charges over the life time of the new loan.
Most of the time you consolidate your debts you are combining all of your bills into one bill which gives you the convenience of having to make only one monthly payment opposed multiple to multiple agencies. You stop the stress and also forget all the different due dates and not to mention mail and stamps. Unless you pay online then you can have fewer bookmarks!
The time you get your home second mortgage you are now using the equity in your home as collateral or security for the loan. If you fail to pay back the bank or lending institution it may result in foreclosure on your home. A few cities if your home is foreclosed upon and sold at an local city auction you may be responsible for any shortage of balance remaining after the sale. And of course this will add to the stress factor and getting a home second mortgage is not stressful might I add
It’s completely fine to think ahead and take out a home second mortgage upon buying you home. A second mortgage will help more than harm and you avoid paying private mortgage insurance, (PMI), which is insurance you have to pay if you don't put the 20 percent down at the time of purchase.
Its different types of ways to use a home second mortgage which leads to different types. The first is a home equity line of credit also known as HELOC. Its assigns a credit limit which you can access whenever you need or want. Its ok to access the cash by using the checks that are issued when the loan is approved. HELOCs can also have terms from 4 years to 24 years and leaving the interest rate always changeable. If the interest rate goes up the payments will follow. A HELOC is also able to be reused, meaning once you pay it off you can access and reuse the account again.
A different type of home second mortgage is the home equity line of credit which is is the sister to the HELOC. With a home equity loan the term limit can sky rocket up to 15 years and the interest rate is of course fixed. At that point its no need to worry about payments increasing and you know exactly when this type of loan is supposed to be paid off. After you finally pay off a home equity loan its no more accessing that account. That’s why its called a closed end loan, the interest on a HELOC and home equity loan can be tax deductible.
These are just a few types of ways to use a home second mortgage, check back soon and we’ll cover some more!