Your home equity loan or home equity line of credit could dash your dreams of reducing your monthly mortgage payment through a refinance. Blame a complicated mortgage-lending quirk known...
Need Money? Take a Second Mortgage
In many ways, your household is like a business. You have a revenue stream bringing money in, and daily expenses taking money out. And, like any business, there may be a point where those expenses require some increased cash flow. For example, your house may need a home improvement, or your child may be heading off to college. These are solid, long-term investments that hopefully will lead to continued growth, and they're worth going into the red to fund.
If you need some extra cash to continue your "business," consider the merits of taking out a second mortgage. Whether in the form of a flexible home equity line of credit (HELOC), or a fixed-rate home equity loan, a second mortgage provides a borrower with quick access to cash, and includes a variety of added perks.
Benefits of second mortgages
Tailor the loan to your lifestyle. You can pick the second mortgage that best matches your needs for cash. A HELOC, for example, is very similar in functionality to a credit card. It comes with a credit limit, allowing you to access funds whenever you need them. Many people use this to cover their kids' annual tuition bills. On the other hand, a home equity loan gives you all the cash at once, but it's locked into a set interest rate and regular monthly payments. (The rates on a HELOC are generally tied to the prime interest rate.)
Quick cash without crippling fees. If you haven't noticed lately, the competition among lenders is furious. That's great news for you, because you can generally get the second mortgage of your choice for minimal closing costs.
Tax deductible. One of the greatest perks of a second mortgage is the fact that the money you pay for interest can be tax deductible. Providing your second mortgage doesn't exceed $100,000, you can generally claim the interest expense on your taxes.
For many borrowers, the significant advantages to a second mortgage loan make it the ideal solution for solving those short-term cash flow problems. However, before you start looking for a lender, make sure that this quick cash will be used for prudent, reasonable expenses, and not just to make a few extra trips to the shopping mall. Think like a business when it comes to running your household, and only dip into the power of a second mortgage when it's truly necessary.
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