Potential Pitfalls in Second Mortgages

• May 18, 2017

Unfortunately, some individuals experience a negative outcome when taking on second mortgages. In as much as mistakes are inevitable, vigilance should be ensured at all times when going for a second mortgage so that you are not entangled by the very things you may have been trying to avoid. If you have any intention of signing up for a second mortgage, here are some potential pitfalls you must watch out for:

Choosing the wrong type of second mortgage

The first pitfall to watch out for is choosing the wrong type of second mortgage. There is the adjustable rate home equity line of credit and the fixed rate home equity loan. If you are aware of the exact amount of money you want to borrow, then a home equity loan would be more suitable. But if you are not so sure of the exact amount of money you need, you will be better off with HELOC.

Drawing too much

With any second mortgage, you will be tapping into the available equity on your home. If you take too much money, you may find it difficult to get more credit or even repay the mortgage down the line. Always strive to remain in control of your credit by not drawing out too much.

Failing to do good research

Just like with any other mortgage products, it is vital for you to shop around for the best deal, which doesn’t mean that you should only pay attention to the interest rate. Take time to perform research on the internet and talk to your local lenders, and have them direct you to the best places where you can be lucky enough to do secure a good deal on your second mortgage.

Second mortgage for debt consolidation

The idea of using second mortgages for debt consolidation is only good on paper. In reality, the consequences may be dire. The simple reason for this is that you can’t dig a hole to fill up another hole. You must address the real reason why you got into debt, instead of getting into more debt thinking that you are actually getting out.