A second mortgage is what it is, a second mortgage. It’s a type of subordinate loan that’s on a roll while the original mortgage still exists. Second mortgage lets you borrow against the value of your home making it possible for you to put the asset towards other goals and projects.
This type of loan uses your home as a collateral, allowing you to use your home’s equity so that you can use it for other purposes like starting a business and so on. People use second mortgage in case there’s a calamity and they need to rebuild the house or when they are planning to buy another property. Some use it for the education of their children. Using second mortgage to buy yourself a new set of clothes or to buy a new gadget is inadvisable since you are risking your home in the process. If you fail to pay your second mortgage, the bank can take over your property.
Amazingly, second mortgages are common here in the Philippines especially during 2008 when the economy hit an all time low.
So, is taking a second mortgage worth it? Or should you stay out of it? Here are things that you need to know about second mortgage that can help you make a sound decision.
Types of second mortgage
Second mortgage has two types: home equity loans and home equity line of credit. With the first one, the lender will give you a lump sum of money that you can pay for certain time. The second one allows you to take the money credit card style, only allowing you to get it when you need it.
Advantages
Of course the advantage is that you can get money to spend for other things that may help you improve your life, may it be buying a new home or planning for the future. The amount that you loan depends on the lender but it was said that they can give you 80% of your home’s value. The interest for second mortgage is known to be low and the tax benefits are just wonderful.
Disadvantages
The major disadvantage of course is that you are putting your home on the line. Your lender can get your property through foreclosure so you really better pay up if you want to retain this property. There are also added fees to remember aside from paying for your loan.
Takeaways
Remember that you should only opt for a second mortgage if the need is very urgent. The effect of not paying it effectively is too grave to risk. Also remember to shop around for the most trustworthy and reliable lender. Beware of the other features of the loan that can get you on the risk. And remember of course, to pay regularly and on schedule.
Image source: http://www.persquare.com.ph/for-sale/townhouse-ncr-metro-manila-quezon-city/ph87-townhouse-deluxe-for-sale-in-north-susana_86952 – Property Hunter Realty
