Reasons to Consider a Second Mortgage
If you are a homeowner with sufficient equity in your home, then one of the ways that you can access that equity is through a product called a second mortgage.
A second mortgage is essentially a loan that uses your home’s equity as collateral. Usually second mortgages are for short terms (only one or two years) and you have the option to pay interest only on them until the end of that term. After the term, you have the option to pay off the entire loan in full or to renew the second mortgage. The interest rate on a second mortgage tends to be higher than the interest rate on a first mortgage, but still significantly lower than on other types of loans.
So why might you consider getting a second mortgage? Here are a few possible reasons:
To Consolidate Debt
As mentioned, the interest rate on second mortgages tends to be much lower than it is on other types of credit such as credit cards, payday loans and even some car loans. If you are looking for a way to pay off your debt faster, one of the best ways to do that is by lowering the amount of interest that you pay.
If you have a lot of high interest debt, then you might consider using a second mortgage to lower your interest rate and get out of debt more quickly.
To Pay for Home Renovations
It is no secret that home renovations can be costly, and oftentimes homeowners don’t have enough cash to pay for their entire renovation upfront. A second mortgage can give you the cash you need to pay for such a renovation.
Using a second mortgage to provide the cash you need to renovate your home can be a particularly smart move if the renovations are going to increase the value of your home. Before you make a renovation, you may want to do a bit of research to find out how much a particular renovation may increase the value of your home.
To Get Start-Up Capital for a Business
If you are looking to start a business and cannot get the full amount of capital that you require from other sources, then you might consider using a second mortgage to obtain it. Keep in mind, however, that this use of a second mortgage is riskier than the others mentioned because there is the possibility that your business will not be profitable.
If you are considering using a second mortgage to gain start-up capital, then you should do so only when you have a solid repayment plan that does not rely on the success of your business.
While there are several other reasons why homeowners consider getting a second mortgage, these are three of the most common. To learn more about second mortgages and whether one might be right for you, contact 1ONEFUND Financial today.