If you are looking to access some cash from your home equity, one of the options that you have available to you is a second mortgage. But is this option right for you. In order to know for sure, you will need to weigh the pros and cons of a second mortgage against that of other solutions. In this article, we will examine some of the pros and cons of second mortgages.
Pro: Low Interest Rates than Credit Cards and Personal Lines of Credit
Compared to other types of loans such as credit cards and personal lines of credit, you will usually pay a much lower interest rate on a second mortgage since it is considered a secured loan.
Con: Higher Interest Rate Than First Mortgages
Even though second mortgages tend to have relatively low interest rates, you will still pay more interest than you will on your first mortgage. So in terms of mortgage solutions, you will likely pay less interest on a mortgage refinance than on a second mortgage.
Pro: No Penalty For Breaking Your First Mortgage
Unlike mortgage refinancing, getting a second mortgage does not require you to break your first mortgage, and therefore you won’t have to worry about paying a penalty. So even though you will be paying a little higher interest, it might still be a more affordable option overall depending on how much of a penalty you would have to pay if you refinanced.
Con: You are Essentially Using Your Home as Collateral
If you decide to get a second mortgage, it is important to understand that you are using your home as security against the loan. Therefore you need to make sure that you are going to be able to afford the payments and have a plan to eventually pay off the loan in full. Otherwise, you could risk losing your home.
Pro: You Don’t Need to Have Perfect Credit to Qualify
While other types of loans typically require you to have good credit, the only real requirement for getting a second mortgage is that you have sufficient equity in your home. This makes it a good type of loan for people with bruised credit, and those who are self-employed.
Second mortgages are just one of many financial strategies that your mortgage broker can help you with. To determine if it is the right strategy for you, contact Akal Mortgages today.
When we say YES! We stand behind our promise.®™