Second mortgages have become more popular among homeowners in recent years. There are numerous reasons why people take out a second mortgage on their home including needing money to renovate or update the home, or send a kid to college. Unfortunately, there are some situations in which people take out second mortgages to stave off the threat of mortgage debt and foreclosure, a risky move that could lead to more problems.
A second mortgage involves taking out a loan against the equity you have already built on your home. While this may provide the cash flow needed for some situations, a borrower needs to be sure they needed cash flow isn’t a sign of a bigger problem.
If you take out a second mortgages to fund projects, pay off bills or even cover your mortgage, this may be a sign of a bigger financial problem. The problems can quickly spin out of control when you can no longer afford to repay the second mortgage, leading to collections, foreclosure and even the need for bankruptcy. It is important to be financially secure in other ways before considering a second mortgage, these types of loans are not the be used as a substitute for loan modification or refinancing solutions to help lower monthly payments.