Not sure whether second mortgage loans are a good idea with bad credit? Here are a few things to keep in mind before conditioning your mind into making new monthly mortgage payments again.
Some people don’t like second mortgages…
Some people, especially retirees don’t like the idea of carrying a second mortgage throughout retirement, despite the thrill of reinvesting the money into something lucrative. New homeowners with enough home equity to use for good business ventures also don’t think that the second mortgage is a brilliant financial strategy. But, just like any other investment-carrying, a second mortgage can be a good idea in certain situations, but there can be drawbacks too.
Here are two factors you must consider before hopping into second mortgage loans for people with bad credit.
Home equity
Do you have more than enough equity to take the plunge? Don’t wait for another housing bubble to burst. Use your equity as a form of leverage before the home values plummet sending many mortgages down the sink. Know where your equity stands, before you sign up for a new loan.
Since second mortgages allow you to borrow up to 80% of your home’s value-it is not enough to know how much you can borrow, but how much you can repay. While the second mortgage has lower interest rates than other types of loan, remember that you are still securing the loan with your home. While it reduces the risk for your lender, it increases the risk on your part-because inability to pay it could mean losing your own home.
Diversification
A lot of people suffered during housing bubbles because they got fooled by attractive real estate returns in the past years. But, those who opted to get a second mortgage to diversify their portfolio were able to do better and can be expected to do so in the future.
You are shifting your assets from your home by getting a second mortgage and investing in ETF’s or mutual funds or in a business venture, thereby diversifying your portfolio to enhance your net worth. Aside from the fact that diversified portfolio outperforms residential real estate returns, getting a second mortgage is also tax-deductible. So, if your home makes up a huge portion of your net worth, it is advisable to get a second mortgage and use it as a tool for diversification. But, despite the potential advantages of this strategy, it can also have some side effects.
Some Final Considerations Before Taking Out Second Mortgage Loans With Bad Credit
If you want to take out a mortgage as a form of leverage, you should know how to handle your other investments wisely. Remember that by getting a second mortgage to diversify your assets, you’re also exposing your home and your additional investments to risk. Increased risk exposure requires increased wealth management strategy as well.
In short, if you are scared of downward fluctuations, make sure that you have personal skills to handle all your new investments before you get a second mortgage for diversification purposes.
Learn more about second mortgage loans for people with bad credit and the financing options available for you by talking to Australian Lending Centre’s consultants today!
