The Pros and Cons of a 2nd Mortgage
It is normal for people to need money. However when you do need a large amount, getting a second mortgage for your Chicago home could be the means of accomplishing that. As the name implies, a second mortgage means that a first one has already been taken out on your home.
Like any home owner, you usually need money when you are having a home improvement project, avoiding PMI or private mortgage insurance, buying a second home, or creating a home equity line of credit.
For those who need money, but feel afraid to get a loan because of the first mortgage, knowing that a second mortgage takes the backseat to the first one in terms of payment priority should they default could infuse some courage in them. However, just because your lender is required to wait because you have a first mortgage should not be a reason for you to take advantage; there are also pitfalls associated with a second mortgage.
A second mortgage is simply borrowing on your home—again. The biggest reason usually given why people take out a second mortgage is they need money.
Using you Chicago home as the security for payment is standard since a home has lots of value; by borrowing against your home, you can get a substantially larger loan than when you applied somewhere else. It would also be easier for lenders to lend you money when your house is the guarantee.
Second mortgages are advantageous in that they are a quick source of large amounts of cash. Also, the rates are not as much as other alternatives, for example – credit cards.
Caution must not go out the window, though, when considering a second mortgage. It may be true that you need money, but careful consideration must always be done. After all, it is the ownership of your home that is put on the line—for the second time.
That is the biggest risk one takes with second mortgages, if you can’t pay, then you are likely to lose your home. So, be wise in considering the risk and the purpose for which you are taking out the loan. Ask yourself: is it worth it?
Also, because it is the first mortgage that needs to get paid first when you default on payments, second mortgages usually carry higher rates. This is to give security to lenders for the risk they are taking on you. A second mortgage also has many fees to be paid. So, even if you need money desperately, you have to factor that reality in when considering applying for a second mortgage, as you may not be able to handle paying numerous service fees later on.
Second mortgages are favorites of Chicago lenders, as they mean bigger returns for their investments. This is why you can find second mortgage lenders in every corner of Chicago. However, don’t let that scare you from trying it. The truth is, there are many lenders that offer honest rates and financial agencies or institutions that offer attractive deals, that benefit both parties.
To save on service fees, it would be advisable for you to acquire your second mortgage from the very Chicago bank or lending institution that has your first mortgage.