Stay Smart When Considering A Second Mortgage Loan

Second mortgages could be one of the most popular types of loans over the next couple of years. If you are considering one, here are some tips to stay safe…

Thanks to fast growing home prices, home equity has soared across America. In Los Angeles alone there is believed to be over $700B in equity in 2017. Banks are also desperate for business as interest rates nudge higher and refinances are in less demand. Lenders are under pressure, and they’ll be aggressive in pushing credit like second mortgages over the next couple years.

Smart Uses for Second Mortgages

There can be smart times to use 2nd mortgages and home equity lines of credit.

It could make sense to take out a second to consolidate debt. That is if you can get a significantly lower interest rate and payments. Some emergencies may warrant taking out one of these loans as well. For example; urgent surgery. Though this is different than just paying to go to the doctor who would otherwise bill you, or covering credit card or car payments you can’t afford. One of the best uses for leveraging equity is for other investments. You could use existing equity as a down payment, or to pay cash and get a better deal on a rental home, or even a retirement condo overseas.

Be cautious about taking out a loan that is tied to your home just to go out and have fun, pay for luxurious that are not necessities, or to go on vacation.

What to Look for in a Home Equity Loan

  • Predictable payments
  • Clear loan terms
  • Low costs and fees
  • Ability to prepay early

What to Watch Out For

Lines that can be rescinded by the lender whenever they like
Balloon payments

Remember that these loans are given in exchange for a lien against your home. If you don’t pay you can lose your home in foreclosure.

Summary

Second mortgages and home equity lines of credit are probably going to be very heavily marketed again in the next few years. For many they good be sound financial moves. However, given the seriousness of putting another lien on your home, do consider all of your options, including refinancing your first mortgage, personal lines of credit, and saving up for what you want first.