A second mortgage is a good way to use the investment you have made in your home. Your home is your most valuable asset and a substantial portion of your lifetime savings go into buying it. Rather than leave these savings locked up, borrowers often use these mortgages to get the maximum benefit out of the investment. Such loans are very popular and are used in a number of ways.
Second mortgages are based on the paid-up equity you have in your home and they make a large sum of money available to you. It may be difficult to accumulate this sizeable chunk of money from other sources. This is why these loans are most often used to pay off large debts like education or medical treatment. Some home owners use these mortgages to prepare for such expenses in advance.
A lender who provides such a mortgage has second priority when he lays claim to your house in case of default. His claim will be fulfilled only after the first loan is completely paid off. This means that the second lender will be more inclined to negotiating easy repayment terms in case you cannot fulfill your dues.
New homebuyers often use second mortgages to cover some portion of the home value when they want to avoid PMI payments. With the first mortgage paying for 80% of the home value, the second 15% and with a 5% down payment, a buyer can easily avoid PMI.
A second mortgage is a good option for a borrower who has a substantial ownership in his home. With some judicious planning and timely repayment, such a loan can help you put the investment in your home to good use.
