A second mortgage, also known as a home equity line of credit, is another mortgage on your home. If you dont pay the debt the lender can take your property. Details about the advantages and disadvantages of second mortgages are below.
Advantages- A second mortgage is based on equity and allows you to borrow a large sum of cash with flexibility. Another advantage is you can usually get much lower interest rates because the loans are secured by a house. In addition to the advantages listed above, there are tax benefits for having a second mortgage because the interest is tax deductible.
Disadvantages- The most significant disadvantage is there is a risk of foreclosure. If you cannot repay a loan you can lose your home and ruin your credit. Another disadvantage is you might have to pay expensive fees including closing costs and points. One point is equal to 1 percent of the loan value.
A second mortgage can be a fantastic way to access low cost funding for a major financial venture, but you should be prepared to repay the money. Most lenders offer second mortgages. It is a method to consolidate your debt by using the money from the second mortgage to pay off other sources of debt.