Pros and cons of a second mortgage

There are many advantages of a second mortgage. Since you get a loan drawn against the equity in your home, you get favorable interest rates. The financial institutions offer second mortgages at very good rates, depending upon your credit potential and the prevailing interest rates. One more advantage of second mortgage is that the interest paid on it is tax deductible. Since the value of a home keeps increasing, the equity automatically keeps growing.

The rates of interest on a credit card or a standard consumer loan are sky high. Besides, there are service charges and hidden fees included with it. A second mortgage is inexpensive and the money can be used for a variety of purposes like home improvements, college tuition, debt consolidation, or even a vacation.

The biggest drawback of the second mortgage is lack of proper planning by the consumer. Since the lenders will offer you as much equity cash as you want, borrowers tend to tap more than they need. There are problems if you decide to move or if the interest rates increase. Suppose, if you decide to relocate and your home depreciates in value, you may wind up owing more than the value of your house. And if there is an increase in the interest rates, your budget will get affected.

You must have a proper planning about your finance before taking a second mortgage. Make sure that the monthly payments are affordable for you. If you are punctual with your payments, the second mortgage will give you the most beneficial results.