Second Mortgage Debt Consolidation
Sometimes the bills just get out of hand. There are a number of reasons why it happens but one way to pay down the debt faster is to take out a second mortgage.
The biggest advantage of a second mortgage for debt consolidation is a lower interest rate. Credit card companies are notorious for raising rates to astronomic levels when you get behind in payments. A second mortgage can take off the pressure by paying off the high interest cards with a lower rate loan.
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The disadvantage of this type of loan is that you pay off short-term unsecured debt with long-term secured debt. A second mortgage means that if you can’t make the payments, you might lose your home.
A second mortgage can be a big decision. It pays to shop around and take the time to understand all your options. You might be able to achieve the same financial objectives with a different type of loan.
Often the interest rates on second mortgages will be higher than on primary mortgages. A second mortgage is always riskier than a primary loan because if there is a default on the loans, the first one will be paid off before the second one.
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Compare the costs of a refinance over a second mortgage. You might be able to pay off your loans at a lower rate with a refinance rather than a second mortgage. But when you’re comparing loans make sure that you find out the total cost of each option. Ask about points, origination fees, insurance and other closing costs. Sometimes a low interest rate will mean high fees.
Contact a debt consolidation professional to find out all your options. Ideally, this person will have no financial stake in your final decision. If they call themselves debt consolidation experts but they are working for a mortgage company, there is an inherent conflict of interest and they may not give the best advice.
Also, before you sign on a loan, take a look at the root cause of the problem. If your credit cards are out of control because your spending is out of control then a second mortgage just puts off the inevitable financial crash. Changing spending habits can make the whole thing work. The problems won’t go away if you turn around and recreate the same situation.
Shop around and take the time to understand all your options.
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