Rock Your Debt

For most people, the American dream is to own a home. Once that dream has been accomplished, then other dreams come into being, such as being able to fix the home just the way you like it, add on extensions or renovate certain rooms, and even pay for college, either for the home owner who desires to go back to school or perhaps their children. These ideas are all common uses for using a second mortgage but for the purposes of this article, debt consolidation is the focus.

Also called a no equity debt consolidation loan, how it works is a second mortgage is taken out on the house. Banks will loan up to 125 percent of the appraised value with a good credit history. Most banks only allow those that they have a solid belief in their ability to pay back the combined mortgages to get the loan; after all, if it took them that long to save the money to buy the house in the first place, the bank wants to ensure that they can do it again at twice value plus interest. So, lets look at some of the advantages and disadvantages of this type of debt vehicle.

Advantages
There are advantages in obtaining a 2nd mortgage debt consolidation. First, for consolidation, this type of loan allows the borrower to combine what they owe, credit cards for instance, into one loan, which allows them to pay interest on just one loan rather than two. This ensures that the loan will be repaid just a little faster, which is good for both the borrowers’ credit rating as well as for the bank, which has another loan wrapped up. This is good for both parties. Lastly, many times the interest is tax deductible. However, be sure to consult a tax adviser before including the interest on your next tax return.

Disadvantages
However, this is not to say that 2nd mortgage debt consolidation loan is the best option for everyone. Besides the obvious point that it is essentially an additional mortgage that also uses your house as collateral, some borrowers forget to read the fine print, so they may miss some of the important notes, such as how the interest rates work, which can sometimes increase over time, or penalties for failed payments. There is also the possibility that the lending institution can ask for a foreclosure if too many payments are missed which could mean the loss of the home. Obviously someone seeking such a loan is advised to not sign anything immediately; even if the potential borrower is willing to deal with it then and there, patience is always a good virtue to which to ascribe. Waiting allows someone a chance to look over the loan without pressure, and possibly even a chance for the papers to be shown to a certified financial adviser, which is always advised when dealing with large sums of money.

Overall, a 2nd mortgage debt consolidation of some form is ideal for someone that can take care of both mortgages normally, and is looking to catch a break. Just remember to take a good look at the paperwork or there may be some serious buyer’s remorse.

You also may be interested in:

1. Consider the Risks Before Taking Cash Out with 125 Second Mortgage Loan
2. How To Calculate Debt To Income Ratio Before You Apply For A Mortgage
3. Why You Should Apply for a No Equity Debt Consolidation Loan