If you find yourself in need of some additional capital and happen to be a homeowner, you are in a unique borrowing position - you may be able to obtain financing through your home equity in the form of a 'second mortgage'.
A second mortgage is really just a glorified term for Home equity loan. Generally, the amount you may borrow here is directly related to your current homes existing value and the outstanding balance of the involved mortgage.
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Why do I need one?
Individuals consider second mortgages for a variety of reasons, but
generally speaking the most common are for home repairs, student loan
repayment, and debt consolidation. This type of loan makes it easy to borrow
funds for all types of projects that may be otherwise difficult to finance
or financed through high interest credit cards.
Second Mortgage Advantages
No question, a second mortgage has some distinct advantages.
Perhaps the most significant is that this loan is based on your home's
equity. As a homeowner, these funds are readily available, and despite your
credit history or employment situation, the qualifying process is usually
based on this alone - much easier than many other types of borrowing.
Additionally, the interest paid on a second mortgage may be tax deductible.
This presents an often overlooked benefit against other types of loans.
Like all good things, there's a catch. In terms of the second mortgage, the primary risk is using your home as collateral. If a situation arises where you default on your second mortgage payments, you may find yourself in a very uncomfortable position - and that is losing your home.
Also, depending on your credit history, you may not be able to get the same interest rate you did with your first mortgage - a low credit score has a direct correlation with interest rates.
How to Get a Second Mortgage