Why Get a Second Mortgage

There are several situations in which you might consider cashing in on your home equity. Here are some scenarios where fixed rate second mortgages make the most sense.

• Debt consolidation. If you have a large amount of unsecured debt, chances are that you are paying sky-high interest rates on this debt. High interest rates mean it will cost you more and take you more time to become debt free. Alternatively, fixed rate second mortgages allow you to use the equity in your home to get a low-interest loan to pay off these debts. As a result, you will have one, lower-interest payment to make each month instead of dozens. If you use fixed rate second mortgages for this purpose, remember that, because they are secured against your home, you could lose your home if you default on payments.
• Investing. An opportunity may have come up recently to invest in a business. In that case, you can use fixed rate second mortgages to take advantage of the opportunity. However, in order to make a profit, you must make sure the ROI (return on investment) is higher than your interest rate on the second mortgage.
• Avoiding PMI. Private mortgage insurance is an additional monthly expense that you must pay if you cannot come up with at least a 20% down payment on your first mortgage loan. To avoid this, you can use fixed rate second mortgages to make up the difference. This is possible when you get a second loan that makes up for 20% of the home purchase price.
• Major life expenses. Perhaps your home needs renovations or your about to send a child away to college. Whatever your life expenses, fixed rate second mortgages can give you a low-interest option to cover them. Fixed rate second mortgages usually have much lower interest rates than credit cards, student loans, and other types of loans.
• Purchase a new car. This is not always the case, but fixed rate second mortgages can often give you a lower-interest auto loan than the dealership. Keep in mind, though, that if you fall behind on your car payments, you stand to lose your home.