Opting for a second mortgage is a decision which warrants a great deal of consideration. Before entering into a second mortgage, homeowners should carefully weigh the advantages and disadvantages of taking on a second mortgage and should also carefully review the different options available. A second mortgage is often enticing because these closed-end loans can be used for any purpose and may even be tax deductible but caution should be exercised because defaulting on these loans can put the home under which the second mortgage was secured in jeopardy. Click Blue Square Mortgage for more info.
The Benefits of a Second Mortgage
We have already stressed the importance of carefully weighing the available options in deciding whether or not to take on a second mortgage. In this section we will outline the benefits of a second mortgage. Although a second mortgage may increase the amount the homeowner pays in the long run, there are other worthwhile benefits to this type of mortgage. Some of these benefits include:
- Debt consolidation
- Tax advantages
- Home improvement possibilities
- Favorable interest rates
Debt consolidation is just one of the many advantages to a second mortgage. A second mortgage is typically secured based on the equity in the home but it can often be used for any purpose. This gives homeowners the opportunity to consolidate several debts including high interest credit card debt, under the umbrella of a second mortgage. Debt consolidation can greatly increase monthly savings by allowing the homeowner to repay high interest debt at the lower interest rate associated with the second mortgage.
There are also tax advantages to securing a second mortgage. As we mentioned credit card debt and other debts may be consolidated under a second mortgage. This is beneficial because tax laws may enable the homeowner to deduct the interest on their second mortgage.
The opportunity to make improvements to the home also exists with a second mortgage. As previously mentioned, a second mortgage can be used for a variety of purposes. Many homeowners take out a home equity line of credit which enables them to cash out on the equity of their home for purposes such as home improvement.
Finally, favorable interest rates are another reason for homeowners to opt for a second mortgage. In making this decision the homeowner should calculate the cost of taking out the second mortgage and compare this cost to the long terms savings potential. If the long term savings potential exceeds the cost of the second mortgage, it is a worthwhile investment.