A second home mortgage is a loan that lets you borrow money against the value of your home and your home equity. Many homeowners decide to take out a second home mortgage for a number of reasons. They can be used to finance home improvements or repairs that improve the property’s value, to pay for college, to finance a second home or even to go on vacation.

However, before deciding to take out a second home mortgage, you should consider the two types of second home mortgages that are available while also comparing the advantages and disadvantages of taking out a second home mortgage.

Types of Second Home Mortgages

There are two types of second home mortgages available: home equity loans and home equity line of credit.

  1. Home equity loans – Home equity loans are similar to traditional first home mortgages. A home equity loan can have either a fixed rate or an adjustable rate, and it can be paid over five-year period.
  2. Home equity line of credit – A home equity line of credit is only offered with an adjustable interest rate. With a home equity line of credit, you’ll only be able to borrow a certain amount based on the equity that you have in the house. Even if you get a home equity line of credit, you don’t have to borrow from it, and if you do, you can do so multiple times if you don’t reach its limit. You’ll also be able to repay what you borrow and then borrow from it again.

The Advantages of a Second Home Mortgage

The following are a few of the benefits you can enjoy from taking out a second home mortgage:

  • Financial flexibility – With a home equity line of credit, you’ll be able to take money out whenever you want. Additionally, with either type of second mortgage loan, you’ll be free to use your loan money in whatever way you please, whether it’s to pay off other debts or to spend it on a vacation to the tropics.
  • Potential savings – If you use your second home mortgage in an intelligent manner, such as paying off other debts, you could end up saving money. This is because even though the interest rate on a second mortgage does tend to be higher than that on a standard first mortgage, the interest rates are still lower than a lot of other types of debts. You could use the money you borrow to pay off a high-interest debt to save money over the long run. However, you need to discipline and not use your credit cards until the second mortgage is paid.

The Disadvantages of a Second Home Mortgage

The following are a few of the disadvantages to consider before choosing to take out a second home mortgage:

  • You’ll limit what you can do with your original loan – Taking out a second mortgage can complicate matters if you attempt to modify or refinance your original home mortgage.
  • You’ll increase your debt – If you’re not financially responsible, the additional debt of a second home mortgage can greatly increase your debt and put you into serious financial trouble if you can’t repay it. In fact, your lender will foreclose on your home if you are unable to make payments on your second mortgage.
  • It’s difficult to qualify – Mortgage lenders are less willing to provide second mortgages to homeowners because they have less financial protection from the potential risk involved. The risk is that if your home is foreclosed on, the money made off of selling your property will go towards paying off the original mortgage and not the second mortgage.
  • The costs can be high – Unless you’re using the second mortgage to invest in your property, thereby improving its value, or to pay off high-interest debt, then the higher interest costs of a second mortgage along with the associated fees, which include appraisal fees and closing costs, can be a high cost to swallow.

Be sure to compare the advantages and disadvantages of taking out a second home mortgage before deciding to do so. You should also keep in mind that most lenders will take into account your loan-to-value ratio, which is the equity you have in your home compared to the percentage of the property that has been mortgaged. If your loan-to-value ratio exceeds 75 to 85 percent when your first and second mortgages are combined, you’re not likely to qualify.  There are some lenders that will go up to 95 percent loan-to-value but you better prepared for high rates, borrowing costs and fees.

An alternative is our Quickie Loan program, if you have equity in your home, I can arrange a loan up from $2,000.00 to $20,000.00 that can be amortized over 12-years. The interest rates are fair along with their fees.  Further, the loan is registered as lien versus being registered as a mortgage against the property which can be postponed to your first home mortgage in a refinancing situation. To start your Quickie loan application follow this link,  It is safe and secured.

I guess the point of this blog is to tell you that you have lots of options and you need to weigh each of them. You need to find out what is suitable for you and your family.