Pros and Cons of Second Mortgage Loans
By C.L. Haehl
A second mortgage loan is a loan that takes secondary lien position relative to your first mortgage. The amount you can borrow depends upon how much equity you have however, there are lenders that offer these mortgages up to 125% of your property s value. Before taking one, here are some pros and cons to weigh:
Pros
1. Avoid Mortgage Insurance
If you are a conforming borrower borrowing more than 80% of your home s worth, most lenders will require you to pay monthly Private Mortgage Insurance (PMI), an insurance policy that covers their risk. To avoid this fee, you can often break your loan into two mortgages, a first mortgage and a second mortgage “piggybacked” on top of it. This eliminates the required PMI, which can be as much as another mortgage payment.
2. Reasonable Fixed Rates
As an alternative to high interest credit card debt, second mortgages usually offer fixed rates that are at least half of revolving debt rates. Although a few points higher than conforming first mortgage rates, this option frequently saves consumers hundreds of dollars per month.
Cons
1. Your Home May Become Harder To Sell
Utilizing a second mortgage to max out your equity, or worse with the 125% options, may make it harder to sell your home. Although you are not thinking of selling today, you should consider your long-term financial goals before taking this route.
2. Foreclosure Danger
Whenever you increase the liens against your property, you increase your chances of foreclosure. Like any other mortgage, failure to make your payments on second mortgages can result in you losing your home.
As with any financial decision, taking a second mortgage requires careful consideration. Keeping these factors in mind will help you make the decision that best fits your financial needs.
List of Recommended Second Mortgage Companies Online - We maintain a list of recommended mortgage companies online and update the list regularly.
Do You Have Bad Credit? Here Are Our Recommended Poor Credit 2nd Mortgage Lenders - We also maintain a list of lenders who service borrowers with credit problems.
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