Why do people get second mortgages?

Question

What would cause a person to take out a second mortgage on their home?

Answer 1

At times in life it may be necessary to come up with a sum of cash for unexpected expenses or even expenses that you might not be able to afford without a influx of cash. In these cases a second mortgage can come in quite handy. Before taking out a second mortgage, however, you should know how they work and the advantages and disadvantages of second mortgages.

Basically a second mortgage occurs when you take out another mortgage on top of the existing mortgage on your home. This type of loan is secured with the property for collateral. Of course, the first mortgage takes precedence in the event that you default on the loan. Any funds that are left would then be applied to the second mortgage.

Many people commonly use second mortgages for such expenses as home improvements, the purchase of a second or vacation home and to consolidate other debts with a lower interest rate. Of course, you may also be able to use the proceeds of your second mortgage for other options but you should always keep in mind that you are putting your home at risk for the purchase and be sure you can justify the risk for that purpose.

Read more here:

http://basicmortgageadvice.com/second-mo...

Answer 2

2nd Mrtg is for repair or adding to the house and some times lower Interest.  When there is a need of money

Answer 3

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Answer 4

.Home improvements........college...vacations.... to consolidate debts.

Answer 5

If someone owes a lot on credit cards and they have equity in their house to be able to get a second mortgage it makes sense.  I did it to pay off a lot of debt.  The second mortgage is tax deductable usually up to $100,000 whereas credit card debt is not.  Some people also do it to buy other things but that is in my opion not a very good idea.  It can also be for renovation which can increase the value and appeal of a home.

Answer 6

Before the "Credit Crunch" 2nd mortgages were a common way of avoiding mortgage insurance when you didn't have 20% to put down on the purchase of a home.  Those were the first casualties.

Today Home Equity Lines of Creidt (HELOC's) do exist for preferred borrowers with equity in their homes.  They work similarly to credit cards, in that you have a credit line, which you can use for anything you want.  Often the first 10 years you pay interest only and then the last 20 years, you can't charge on them and have to start paying back the principal plus interest.

I think every homeowner with equity should have one established.  If you don't draw on it it costs you nothing, except perhaps a small maintenance fee. It's like having free insurance in case you run into a financial problem, like a job loss or illness.  As I tell my clients, when you NEED it you might not qualify for it.

Because home values have been declining, many HELOC's have been frozen or credit lines reduced and many lenders have stopped offering them.

Answer 7

Also flexibile terms at purchase of home

Answer 8

they spend more than they make

Answer 9

you see a lot of different philosophies here.  I used to close a lot of home equities and I thought they were a tremendous vehicle to help borrowers but my thoughts have changed on this.  2nds are like any other mortgage product in the sense that they have their purpose.  If you need quick cash out of your home, then they are an option, and generally their rates are low and most now have lock in features where you can lock in the rate of a draw, what lenders dont tell you is when the rate is locked, it's locked at loan rates.  for example, hsbc is offering 5% prime on a heloc, to lock in a draw, the rate jumps to over 7%.  I disagree with the idea that borrower's need a 2nd, with our societies greed and need to keep up with the jones', a 2nd, especially a heloc is like an atm on your home, and people can get over extended in a hurry, add to this the fact that rates are adjustable monthly, it can get out of hand quickly.  I tend to think that lenders are on the right track now, 2nd were too easy to get and hopefully borrower's now are starting to learn that they need to be educated and explore all options before they do something like this

Answer 10

they need money.  People use it for home improvements, vacations, etc any thing you can think of. Some people can not afford there first mortgage so they need the 2nd mortgage to pay the first