Getting a second mortgage is not a decision to trifle with. After all, you need to use your home equity as collateral for you to get approved for a second mortgage. With this in mind, how do you know when it is time for you to get a second mortgage? What are sound reasons to apply for one and how to gauge if you will truly benefit from it versus if its something that is just nice to have?
So, What is a Second Mortgage?
A second mortgage is a type of mortgage that you can apply for once you already have a primary mortgage. It is backed by the value you’ve built in your property – which is why a second mortgage usually allows you to tap to up to 85% of your home equity.
We’ve compiled several reasons why getting a second mortgage may be beneficial for you right now. Use the following reasons to assess whether it is the right time for you to get a second mortgage or not.
You Want to Buy an Investment Property
It is one thing to simply want to buy houses for the sake of buying houses versus buying one to help make more money for you. If you want to buy an investment property but do not have enough cash to pay for the huge downpayment, getting a second mortgage may be the right decision for you provided that your cash flow can cover the rest.
You Want to Consolidate Debt with Home Equity
Consolidating debt saves a lot of money. When you consolidate debt, you end up with a single lower-interest debt versus having to pay several high-interest debts. Saving money this way can amount to a couple of thousands saved on a monthly basis. If the savings are going to be worth the effort of consolidating debt, then it is certainly justified for you to get a second mortgage.
You Need Funds to Pay for School
Are you planning to go back to school to improve your earning potential or want to fund a loved one’s higher education? Investing in education is one of the best reasons to get a second mortgage because you will surely earn back whatever money you invested in it. It may take a while to start seeing returns but it is worth waiting for if you want a brighter future for you and your family.
You Need Funds to Invest in a Business
You can’t make money without having money. If you want to start a business or expand one, you will certainly need a huge sum to do so. You can use the funds from a second mortgage to beef up your existing business or to start a new venture. This is a huge gamble but if you’re responsible enough to watch where the money goes and determined to get it back, then perhaps it is time for you to get a second mortgage.
You Want to Renovate Your Home
It is quite expensive to renovate a home but then, renovated homes tend to increase their value. You can use a second mortgage to finance a home renovation and then use the increase in home value to pay for the second mortgage at a future date. This is a good move if you’re planning to renovate your home for reselling.