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A second mortgage loan allows you to borrow against the value of your home.  Since your home is an asset, it can gain value over time. These are also known as HELOCs (home equity lines of credit).  The accumulated equity can be accessed and used for home projects or personal financial goals.

What is a second mortgage?

A second mortgage is a loan that uses your home as collateral.  The first loan used to purchase the home is called a primary mortgage.  Other loans added to the primary loan are called second mortgages regardless of how many there are.

Second mortgages are taken out so that you can fulfill other financial needs.  You can borrow the difference between the fair market value of your home and what you owe for the first mortgage.

There are two main types of second mortgages available:

  1. Home equity loans allow you to borrow a single lump sum of money.  This one-time loan can be used for any purpose.  You will receive a lump sum of money that you can repay gradually over time, usually with fixed monthly payments.
  2. Home equity lines of credit (HELOCs) let you withdraw cash as needed.  Similar to a credit card, this loan has a maximum credit limit set by the lender.  You’ll be able to borrow out of that limit as much as you would like and pay it back to keep funds available.  Interest rates are typically adjustable.

Common uses of second mortgages

There’s a variety of reasons why you would choose to get a second mortgage.  It is advised to use it wisely for something that will increase the value of the home or bring other important benefits into your life.  Here are some reason why people choose to get a second mortgage:

  • Home improvement projects are a great way to increase the value of your home.  The funds from a second mortgage can be used to comfortably achieve the changes your home needs.  It is an investment towards the value of your property and will greatly benefit you in the future if you decide to sell the home or refinance your mortgage.
  • Avoiding private mortgage insurance (PMI) is another reason to consider taking out a second mortgage.  The funds are used to pay down the primary mortgage and bring your loan-to-value ratio to 80 percent.  We will calculate if this strategy makes sense compared to paying and then cancelling PMI.
  • Debt consolidation is something that can be considered if you’re looking to payoff high-interest debts.  A second mortgage could bring a lot of financial relief if your debts have become unmanageable.
  • Education expenses can result in an expensive accumulation of student loans.  A professional degree is an investment and may bring you the opportunity of future income.  We will help you determine if a second mortgage is a better option than student debt.
  • Medical bills can become a harsh reality that can haunt you until they are paid off.  A second mortgage can be a big relief for borrowers facing health difficulties and the aftermath that it creates.

Using a second mortgage for luxuries such as buying a new car or going on vacation is not advisable.  These expenses don’t add much value to your financial life and must be carefully considered.

You are in good hands

At FourPath Mortgage, we take pride in helping people achieve their financial goals with a variety of different mortgage strategies.

Whether you choose a second mortgage or another option, we will make sure you understand how we arrive at our recommendations.  It’s important for you to be an informed borrower, it will make a difference in how successful you are in your financial future.  We are here to educate and assist you so you feel confident in making the right decisions.

Second mortgages can be a great idea and can actually save you money in the long-run.  Just be sure to have the guidance of a mortgage professional who can run you through different scenarios that will determine if indeed this is a good option for you.  We are your advocate, you can feel you are in good hands knowing we will act in your best interest to help you arrive at an excellent mortgage option.