Second Mortgage Debt Consolidation Loans

A second mortgage home loan is a loan taken out against the equity in your home. A second mortgage home loan is often referred to as an equity loan. A second mortgage leaves the first mortgage in place without changing the terms of the first mortgage in any way – when you have a second mortgage home loan you will be making two separate mortgage payments each month.

A second mortgage – or equity loan – is based on the equity in your property. Equity is defined as the difference between what you still owe on your home and the current fair-market value of your house. Because a second mortgage is secured by the equity in your home the interest rate is usually fairly low (although higher than the interest rate on a first mortgage) and there is often very little paperwork required. Depending on the amount of your equity loan you may not even need an appraisal made of the home.

There are several reasons that people take out a second mortgage home loan. An increasingly common reason is debt consolidation. People with large numbers of unsecured loans (often credit card debt) may find that they can save money each month by taking out a lower-interest home equity loan and using the proceeds of that loan to pay off their unsecured loans.

Not only can monthly payments be considerably reduced, but by changing unsecured loans into a second mortgage loan, the interest paid now becomes tax deductible, providing an even greater savings. Paying off several unsecured debts and replacing them with a single lower-interest home loan can even improve your credit score.

Care needs to be taken, however. By replacing unsecured debt with a loan secured by your home you are placing your home at risk should you be unable to make payments in the future.

If you decide to take out a debt consolidation loan, you should be prepared to cancel all but one or two of your credit cards so that you are not tempted to start the credit-card cycle all over again, only this time placing yourself in an even worse position.

A second mortgage home loan for the purpose of paying off unsecured debt can be a good idea. Just make sure you run through all the numbers carefully and make sure that you feel confident about your ability to make your new second mortgage payments into the future.