A secured second mortgage can be one way to lessen your current financial burden and manage additional expenses. Home equity can be harnessed as a means to create immediate cash flow when necessary, an option many new homeowners may not necessarily realize.  

 

 

Just as it sounds, a second mortgage is a mortgage you incur in addition to the original mortgage you set up when purchasing your home. This means while making payments on your original mortgage, you will be making payments on your second mortgage at the same time. There are two major categories of second mortgages: home equity loans and home equity lines of credit. The home equity loan allows you a large sum of money which is repaid gradually through monthly payments with a fixed interest rate. The home equity line of credit works like a credit card, allowing you to borrow what you need when you need it. The term "second" means it does not take priority over your initial mortgage and you are obligated to pay off the initial loan first if you sell your house. You can borrow up to 85% of the appraised value on your home after accounting for the original value owed on your first loan. For example, if your current home was appraised at $600,000 and your current  mortgage is  for $400,000 you could potentially be eligible for an $110,000second mortgage.. Naturally, this option only exists for those who have existing equity in their home to borrow against. Equity occurs as you pay down your existing mortgage or if your home increases in value over time.

 

 

The major benefit of a second mortgage is that you have access to a large sum of money which you can spend however you see fit. You might consider a second mortgage in cases where you would need a lot of money up front to pay for a home renovation, a new car, or past and future educational costs. Credit cards typically have higher interest rates than second mortgages, allowing you to put money towards the principal amount owed rather than just the minimum monthly payments. Credit cards also only give you limited access to amounts which may not be enough for your current needs. In this case, your home equity can provide the extra cash you may need. Second mortgages are especially beneficial when interest rates are low and your current home value is increasing.

 

 

Similar to any financial decision, it is important to do your research and make a repayment plan. Defaulting on your second mortgage could cost you your home. Make sure to shop around for the best rates and assess the accompanying fees to make sure it’s the right choice for you.

 

A secured second mortgage with your current or outside provider can prove to be an excellent choice for homeowners looking to free up some equity in their home.