Bankruptcy and a Second Mortgage
A second mortgage is a loan taken out to borrow money against your first mortgage. This process can be done for a variety of reasons: consolidating debts, financing home improvements, to avoid property mortgage insurance, and others. Second mortgages tap into the equity in your home that you have built up over time.
Second mortgages can have benefits to homeowners. A second mortgage often allows people to borrow a large amount of money at one time because the loan is secured against their home (which is typically worth a good deal of money). Second mortgages often have a lower interest rate than other loans, and in some cases, people may receive a tax benefit because they are allowed a deduction for interest paid on the second mortgage.
However, taking out a second mortgage often gets people into a great deal of financial trouble. The biggest risk of taking out a second mortgage is that you have to put your house on the line. You are taking money out on something you still owe money on. A large percentage of people who have taken out a second mortgage have had to file for foreclosure because they could not make the payments on both the original home loan and the second loan.
People often forget to look at the entire picture when they think about taking out a second mortgage. Any time you borrow money (outside, perhaps, of a nice family relative or friend) you will be required to pay interest. Taking out a second mortgage requires lenders to take a greater risk. If you become unable to pay your payments, the lender will not get paid unless the first mortgage lender gets paid in full. This is why interest rates are higher for second mortgages than they are for the first loan’s rate.
Before you consider taking out a second mortgage, it is imperative that you fully look into your financial situation. Second mortgages are a common cause for filing bankruptcy. People often get themselves too far over their heads in debt that they begin drowning.
If you are struggling financially, please contact Gingold & Gingold, LLC. Our knowledgeable and experienced bankruptcy attorneys will review your specific circumstances and work with you to determine the best solution for your needs.
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