A second mortgage is another loan that has second priority behind your first mortgage.
Similar to your original mortgage, it uses your home as collateral. While it can be beneficial
in many situations, it can also be a risk if not considered appropriately.
 
If you’re exploring if a second mortgage is the right choice for your financial situation, here
are some advantages and disadvantages to take in to account:
 
Advantages
 
  • Access your home’s equity
With a second mortgage, you can tap into your home’s equity. This allows you to put
your home’s growth in value towards other projects and goals, like a home
improvement or kids’ college tuition.
 
  • Lower interest rates than other loans
Because second mortgages are secured by the house, they are often considered
safer by lenders than other loans types. In other words, banks will actually get
something back if you default on the mortgage. This means borrowers will generally
obtain much lower interest rates on second mortgages than on unsecured loans
or credit cards.
 
  •  Debt consolidation
You may have the option to consolidate your other high-interest loan amounts into a
single, lower interest second mortgage.
 
Disadvantages
 
  • Risk of foreclosure
If you’re unable to repay your loan the lender can foreclosure on your property ad
you risk losing your home. This risk of foreclosure does not exist with other
unsecured loans.
 
  • Higher interest rate than first mortgage
The lender on your first mortgage has priority over the lender on your second. If you
stop your payments, the second lender has to wait until the first lender gets their
money back first. Because the second lender is taking on this additional risk, the
interest rate on your second mortgage will be higher than your first.
 
It’s important you understand your capabilities to repay your loans before you
take out a second mortgage. Get advice from a mortgage professional who can
help discover the best options for your financial situation.
 
In financial health,
 
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