Is it a Good Idea to Use Home Equity and Get a Second Mortgage?


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If you have extra equity in your home, then you might consider the option to get a second mortgage. For many years, second mortgages were frowned upon in the real estate industry because many people had bad experiences using this strategy. You might know a friend or family member who was burned by a second mortgage, which makes you hesitant to use this strategy for your home.

Changes in the Housing Market

But, things have changed in the housing industry. Most professionals agree that the current circumstances are more stable compared to the previous real estate market. There are some real benefits to using a second mortgage; you just need to make sure that you are using a strong strategy.

For example, if you want to remodel your home and increase the square footage, then you can get a loan to pay for the renovation costs. The cash liquidity gives you the option to pay the contractors. Then, you can benefit from the higher property value. Or, you might use a second mortgage to pay down high-interest debt, such as credit card balances. This step decreases the interest accrual.

The interest on a second mortgage could be tax-deductible (check with your tax professional), but credit card interest is not. Keep in mind that it is always best to talk to your accountant before making any big financial decisions.

What You Need to Watch for with a Second Mortgage

If you are going to use this financial strategy, there are a few things that you need to watch for to protect your family. Don’t make the mistake of over-extending the financial obligations. You will take on new payments that need to be met every month.

Many times, home equity lines of credit are adjustable. So, your payments will increase if the interest rates go up. You should discuss your options with a mortgage professional so that you know what to expect for the payoff terms on the loans.

If your income level changed due to a job loss, would you still be able to meet the payments? You might consider using a home equity line of credit if you will be able to continue with payments even after a change in income.

Whether you are looking to renovate your current home or move to a new property, I am here to help with your real estate needs! Call, text or send me an email with your questions: (951) 473-0390 or cthomas@epdre.com