The option to take out a second mortgage on your home for financial purposes important to you is always there provided you have good enough credit and the equity to take on a second mortgage. However, there is some debate as to whether or not this is a good idea. It’s not something everyone does for the right reasons, and it’s not something that everyone does for the wrong reasons. However, most people have their own ideas when it comes to a second mortgage. I once overheard a conversation between moms at my daughter’s gymnastics class that involved one mom taking out a second mortgage on her house so she could stay home with her second baby for a year.
Her friend applauded her for that; she told her that there is no better reason to take out a second mortgage on a home than to be home with your family. This conversation occurred when the mother who took out the second mortgage to stay home with her child was complaining that her house is not big enough for her newly expanding family – she’s pregnant with baby three – but she cannot afford to sell her house since it’s no longer worth what they owe.
It’s not always a good idea to take out a second mortgage. While I understand her desire to want to stay home with her child, I also know that she is now in a position in which it was a mistake for her to make this decision. Her life is her life; and what she chooses to do with her finances if her own personal issue. However, it is a good idea to remember that there are good ideas and there are bad ideas when it comes to taking out a second mortgage. If you’d like, we can help you go through these different reasons for potentially taking out a second mortgage and we can tell you whether they fall into the category of good or bad.
Take Out A Second Mortgage to Make Money
Sometimes you have to spend money to make money, and that is never truer than it is in the world or mortgages. If your home needs a few updates and a few different changes to make it worth more, taking out a second mortgage to pay for those concepts might be a great idea.
Let’s say you bought a home as a foreclosure, and you paid far less than the value of the home. However, it’s also the worst home in the neighborhood. You can add granite, update your floors, upgrade your landscaping and change the bathrooms and kitchens to add value to your home so that you can make money on the house when you decide to sell. You’re probably already going to make money on the sale, but improving the house to match the neighborhood is an idea that will likely net you far more than you ever thought possible.
Additionally, some people take out a second mortgage on their primary residence to buy an investment property. Perhaps you might consider this you have a piece of property you want to invest in, turn into a rental or flip. It’s an idea that is a good one provided you do your homework to ensure that what you are buying is going to turn into a profitable experience at some point in the near future.
Another idea might be to pay off debt. You can get a much lower rate and one payment if you want to consolidate your debt, but you have to make sure the math adds up and you change your bad spending habits. If you are taking out a second mortgage to pay off debt and then rack that debt right back up, you are not doing yourself any favors.
Do Not Take Out A Second Mortgage to Improve Your Life
We love the idea of upgrading your home, but we don’t think it’s a good idea to spend 10, 20 or 30 years paying off your lifestyle. Let’s say you want to take your dream vacation; do you take out a second mortgage to do it? No; because you don’t want to still be paying for the Bora Bora vacation in 10 years, do you?
It’s also a terrible idea to pay for a car with a second mortgage. Here’s why; you might get to finance it for far longer, but when you take out a second mortgage for 20 years and you use that money to buy a brand new car, you’re going to pay for it for 20 years. Do you want to pay for that car for 20 years? You probably don’t drive it 3 or 4 years, and you’ll have another car after that. Now you’re paying for two cars, and that’s just one of the worst situations you can put yourself in.
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