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Bad Credit Second Mortage Resource Guide
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Bad Credit Second Mortage
A second mortgage is a secured mortgage using the equity of your property for which you already hae an existing mortgage. A common reason to take out a second mortgage would be to use the equity from your property to obtain funds. Usually, the interest paid on a second mortgage will be higher than what you are paying on your first mortgage. The reason is because the borrowing is higher and the risk for the lender is greater.
A second mortgage can be very helpful for a homeowner who has run into some financial difficulty and needs to tap into their home equity to consolidate their debt.
There are some things to consider when taking out a second mortgage to consolidate debts:
- If the interest rate on your credit card debt is lower than the rate of your second mortgage, dont include this credit card debt in your consolidation plan since it will only cost you more.
- Taking out a second mortgage may interfere with your ability to refinance your first mortgage when a profitable opportunity arises. When the first mortgage is paid off, the second mortgage automatically becomes the first mortgage. Second mortgage lenders will have to provide the refinancing lender with a written statement indicating willingness to subordinate the second mortgage to the new first mortgage. Usually the second mortgage lender will charge a fee to do this, or may not even do it at all.
- If there is a possibility for you to relocate in the future, a second mortgage may cause a problem. If your second mortgage results in total mortgage debt that exceeds the value of your property, then you will need to find the extra cash to pay off both mortgages when selling your house. For instance, if you owe $300,000 and can only sell your house for $250,000 you will have to pay off a mortgage of $300,000, meaning you will have to find an extra $50,000 cash to pay off the difference. If you can't come up with the cash you will have to default, which can prevent you from buying a house in your new location.
- Second mortgages can be costly. Make sure you find out what exactly the charges will be. Even if they tell you no cash is required, it does not mean there are no fees. They will just add the fees to the total amount you are borrowing. Make sure to shop around to find the best lender. The offers you get will depend heavily on your credit rating.
- Having a lower payment from obtaining a second mortgage for debt consolidation can tempt you into building up your credit card debt all over again. Have a money management plan in place to prevent this from happening.
Ultimately, a second mortgage is a secured loan on your property, which means your home is at risk if you can't make payments. But, if used correctly, a second mortgage can be very useful to help pay off high interest debt.
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