2nd Mortgage – Part 1

Are you considering a 2nd mortgage?

Bankrate.com reports that the average American homeowner with a mortgage has just shy of $300,000 in home equity. This increased among this group by $24,000 just since the 4th quarter of 2022. Nearly 50% of mortgaged residences have a loan balance that’s less than half the home’s value.

2nd mortgages are available to those with positive home equity. These loans are means of financing maintenance or improvements to your property. These are taken in addition to a primary mortgage. They’re called 2nd, because, in the event of bankruptcy or foreclosure, they’re paid off after the original mortgage. Cash is given and secured by equity in the home.

So what is equity? It’s the difference between a home’s value and how much you owe on it. For example, a house worth $300,000 with a remaining $200,000 mortgage has an equity of $100,000. Home equity increases with each mortgage payment. Monthly mortgage payments are required on both loans. A 2nd usually has a higher interest rate than a primary mortgage. They’re helpful when cash is needed, but can be risky. They increase debt and the possibility of foreclosure. Plus, that higher interest rate must be seriously considered. Don’t assume you can sell your house and cover both mortgages if the unexpected occurs. I recommend having a healthy emergency fund and only using a 2nd mortgage if absolutely necessary.

And if you’re thinking about a 2nd mortgage because of mounting credit card debt, let Christian Credit Counselors help. They can create a debt management plan that works for you. For more information visit crown.org/ccc.