Fort Wayne Homeowners: Is a Second Mortgage Right For You?
Do you have equity in your Fort Wayne home and need a little cash in your pocket? If so, a second mortgage might be the right thing for you. Equity in your Fort Wayne home is the difference between the value of your home and what you still owe on your mortgage. If you have a home that is valued at $250,000 and you have a mortgage balance of $155,000, you have $95,000 of equity in your home.
When you obtain a second mortgage on your Fort Wayne home the process is very similar to obtaining a traditional mortgage. The lender will use your property as collateral for the amount that they loan you.
The Cash is All Yours
When you receive funds from a second mortgage you are free to spend the money on whatever you choose. However, you should carefully weigh the fact that this is not free money. You will be paying interest on the loan and the rate is usually higher than that on a first mortgage because the lender is taking a larger risk. Should you default on your payments the first lender has priority in being repaid over the second mortgage lender.
While it might sound nice to use the funds from your second mortgage to start knocking items like “go to Paris” off of your bucket list, this is not the best use for your cash. These are borrowed funds that you will be making payment on.
However, many Fort Wayne homeowners use the funds to complete remodels and renovations on their Fort Wayne homes, which thus creates even more equity in their home. Other popular reasons to obtain a second mortgage are to pay for children’s college education or consolidate higher interest credit card balances.
Mortgage Options
Second mortgages come in the form of two options: a home equity loan or a home equity line of credit (HELOC). The first is basically a traditional loan. You receive the funds, pay interest on the balance and beginning making payments each month.
A HELOC on the other hand, allows you to only pay interest on the funds you are using. The entire balance of the loan goes into a line of credit that you are able to access as you want. You then pay interest and payments on the amount that you have borrowed. This allows you to pay back and re-borrow funds over time without having to redo the paperwork.
A HELOC is also a good option for completing additions or remodels to your Fort Wayne home. It allows you to borrow the funds that you need as you need them and only pay interest on that amount. If you obtain a HELOC and have a contractor doing work for you, the funds can sit in the account without adding interest until the work is complete and you need to pay the contractor.
Getting a second mortgage can seem like a quick and easy solution to putting cash in your pocket, however it comes at a price. Carefully consider why you are interested in getting the funds and if the benefit will be worth the cost. If you are ready to move forward you can contact your current mortgage provider or work with another company, the choice is yours.