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Debt Consolidation
Dec 04, 2015

Using a Second Mortgage for Debt Consolidation

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If you are in over your head in debt, you have several options available to you to help you regain your hold on your finances. Debt consolidation is always a possibility, and many people choose to take out second mortgages in Hamilton for this very reason. However, it may not always be the best choice.

Understanding Debt Consolidation

The entire idea behind debt consolidation involves moving several different high-interest debts to one lower-interest lender. Some people choose to move several high-interest credit card balances to a single low-interest card, which is a form of debt consolidation. Others choose to take out second mortgages on their homes for a lump sum of cash. They then use this cash to pay off other debts, and make payments on the second mortgage over the course of many years.

Second Mortgages Impact Your Credit

A second mortgage in Hamilton, much like the first, adds another obligation to your credit history – and a very large one, at that. This means that, should an opportunity arise to refinance your first mortgage and get a much lower interest rate, you may not be able to take that opportunity because of your less-than-optimal credit. This also means that you are stuck with two high-interest loans, and failing to make the payments on either may lead to foreclosure. With two mortgages, you may be unable to access credit cards and other forms of credit in the future, too.

A Second Mortgage Might Kill Your Equity

Assume that you owe $105,000 on your first mortgage. Your home is valued at a total of $125,000. This means that you currently have $20,000 in equity to work with. You need a total of $50,000 to pay off your debts, so you take out a second mortgage from the same lender. Now you owe that lender a total of $155,000, but your home is only worth $125,000. You are officially underwater in your mortgage by $30,000, and even selling your home will still leave you in debt. In this case, a second mortgage is usually not the answer.

When Second Mortgages in Hamilton Make Sense

Although a second mortgage should usually be a last resort over other forms of credit such as your home’s equity, there are some situations in which it might actually make sense. For instance, let’s say you owe a total of $30,000 on your home, your home is worth $150,000, but you don’t want to borrow against your home equity from that particular lender due to high interest rates. At this point, it might actually make sense to obtain a second mortgage. You can use some of those funds to pay off your first mortgage, and use the rest to pay off your debts. Then, all you have left is one monthly payment.

Second mortgages in Hamilton are not always the answer, but in some situations, they can help you hang on to your financial security. Make sure that you take the time to study all of the options that are available to you and speak with a trusted financial advisor before making any decisions.