Second Mortgage - Need for Cash

A second mortgage is a loan that you take out on home you already have mortgaged.

 People often take out such loan when they need extra funds. With the home equity you've established, you can then raise those extra funds that you need.

Perhaps your home is in dire need of improvements, but you just don't have the extra cash. Maybe your child is going off to college, and, like most parents, you can't afford to pay out of your pocket the rising tuition costs. Perhaps you need capital to start a new business. These are all common reasons for taking out a a mortgage for the second time.

A mortgage like this works by acting as a secured loan on your home, using your home as collateral - a home loan. This is not a good option for people who are at risk of missing the larger monthly payments, as it puts them in the position of losing their home if they default. However, for those who can handle the payments, it is an good option for obtaining extra spending power.

A line of credit second mortgage is just that: an amount of money that you can borrow at a future date as needed. This amount is available to you all at once or in several small disbursements spread over many years.

For example, you apply for and get approved for a $50,000 line of credit (secured by a second mortgage on your home). You can borrow the entire $50,000 at one time.

Alternatively, you can wait a few months and borrow $20,000 for a new car. A few months later you can borrow $6,000 to add a room to your house. Later still, you can borrow another $3,000 to pay off a credit card bill.

So far you will have borrowed $29,000, meaning that you have $21,000 left on your line of credit that you can borrow later if you need to.

These mortgage loans carry a higher interest rate than first home mortgage loans. Their interest rates, however, are less than that of an unsecured loan. Finally, depending upon your home's value, these mortgages allow you to borrow larger amounts of money than conventional loans.

Second mortgages allow homeowners to tap the equity in their homes to purchase expensive items, pay of debts, or most anything else.

Home equity loans are usually used to fund a present need while lines of credit are often established for use at some time in the future.

It is very important that you use a second mortgage wisely because if you get into financial trouble you can potentially lose your home. But if used properly, a second mortgage can help you enjoy a better lifestyle, now and in the future.