When property values are on the rise, it is tempting to consider taking out a second mortgage so you can put the equity in your home to use. While this can be an excellent plan, it isn’t the right path to take for everyone. It is important to take a close look at your current situation and future plans to learn if obtaining a second mortgage is right for you.
The first thing to think about is whether your budget can handle the monthly payment on a second mortgage. While a lender will look at this, too, before approving your loan, you need to consider if the payment is something you are comfortable with.
The next thing to consider is how you’ll use the funds. For example, it can save you money to use a second mortgage to consolidate debt. However, that only works in your favor if you do not build those credit card balances back up again, leaving you with both credit card payments and a second mortgage payment to cover each month. As for other ways to use the funds, you’ll have to gauge whether upgrading your home, going on a dream vacation, paying your children’s college tuition, or another use gives you a benefit that is worth facing that second mortgage payment every month. When it comes to it being an alternative to incurring a higher-interest debt, it often makes great sense to go with a second mortgage.
Finally, think about your long-term goals. The total of your first and second mortgage may be covered by the value of your home right now, but what if house prices drop? Are you prepared to stay in your home long enough for the values to go back up? If not, then a second mortgage is either not right for you or you should be careful to borrow only part of the value of your home.
The good news is that at Donna Mullen & Associates, we are dedicated to helping our clients make smart mortgage lending decisions. We are committed to educating you about your financing options, so you can move forward with confidence whether that is for a second mortgage or refinancing your current one. Contact us today to learn more.