Sometimes people decide to take out a 2nd mortgage when they need to do some home renovations or a lot of debts to consolidate. Basically, anytime there is a significant need for additional money you could consider this as an option. What you would be doing is taking out another loan against the same property that you got with your first mortgage. The thing about these loans is that they present a higher risk to the lenders. This therefore means you will end up paying more an interest this time than you did when you got your first mortgage.
Some people get confused and think that this is the same thing as refinancing. However, this is totally different. When you refinance, you are changing the terms of your initial mortgage. When you get a 2nd mortgage, you are actually getting an additional loan against the equity in your home.
As with any type of loan, there are going to be pros and cons to weigh out. One of the better aspects of getting this type of loan is that if you have a lot of debts that you are paying high interest on, you could actually save a significant amount of money by taking out another mortgage and paying all of them off. This is because you are likely to get a lower interest rate from an additional mortgage than what you are currently paying on things like credit card debts. Plus, it will be much easier for you to manage one monthly payment than it is for you to manage multiple payments at different times of the month.
Where this kind of loan tends to become a problem is in the event that you are unable to make your payments. This is because by defaulting you are giving your lender the right to take your home. Plus, there are some fairly high fees for getting another mortgage. Just make sure that you take both sides into consideration before you make your decision.
You will have two choices as to what kind of loan you will get. The first choice is called a home equity line of credit. This is basically a lot like how a credit card works. The lender will consider the amount of equity that you have in your home and then they will determine the amount of your line of credit accordingly. This option is a little less stable in a sense that your interest rates will be variable and depend upon the market index rates.
The second choice would be a home equity loan, and with this option, you would be able to get a fixed interest rate along with a set term.
It is beneficial for lenders to extend this kind of loan because they are able to make money by charging you an interest rate that is higher than a first mortgage. In either way, you should make your decision based on how badly you need a 2nd mortgage along with your ability to pay it back on time.