So, you’ve finished your research on a second mortgage and learned how to qualify and apply. Now you may be wondering if you should go through with the process. Is it really the right loan option for you?
The answer may be evident by reviewing how your finances are looking at this point in your life. If you are already managing a large debt or stretching your paycheck to cover bills, it may not be the best time to take on a second mortgage. Adding additional monthly payments, you struggle to pay, may put your mortgage property in jeopardy. Also keep in mind, with rising interest rates, your interest on a 2nd mortgage or home equity line of credit may be notably higher than your primary mortgage rate, which may also affect how well you are able to repay the loan.
Before you jump into a second mortgage loan, have you considered refinancing your current mortgage? This option does have many advantages, but if your first mortgage is locked in at a below market rate, refinancing to a higher current market rate could end up being a costly mistake. If it appears a second mortgage is your best option, there are several situations where an equity loan could be a great asset to you. Let’s review a few of those.
Consolidating your credit card or student loan debt. High interest rates or extended repayment plans on most credit cards and student loans can feel overwhelming. A second mortgage can offer a LOWER interest rate than most credit card lines and some student loans. You can combine all your credit card or student loan debt into one, allowing you to pay them off with your second mortgage. For those in college, it is possible to utilize your home equity to make your tuition payments instead of relying on student loans.
Medical debt is another burden which can feel crushing and never ending. Pursuing a second mortgage while you are hospitalized or unable to work, maybe pose a challenge as the lack of repayment may cost you your house. However, if you have a variety of past medical bills showing up on your credit report that exceed your ability to repay, a second mortgage can help you pay down the debt while helping you get into a better financial position.
If you’re looking at remodeling your house, whether in preparation to sell or for much needed upgrades or repairs, this is once again, a good loan to consider. Any type of remodel to your home or property typically increases your property value. If there are plans in the future for selling, an increased property value means you could sell the house for more than your initial mortgage.
You could pursue the purchase of a second home with a second mortgage if that is part of your financial goals. Whether you intent to rent out your current residence and move into the new one, use your second home as a summer or winter residence, or to buy it as a gift for a
family member, it is possible to do so with this loan. Even though there are some risks involved with this option, if you manage your finances carefully, it can be a good investment oppportunity.
There are many different reasons for accessing the equity in your home and utilizing a second mortgage is another option to consider. If you are still unsure how a second mortgage fits into your financial future, it’s best to reach out to your mortgage lender at Dakotaland Federal Credit Union for sound advice.