If your home is worth more than the amount you currently owe on it, you may have the option to take out a second mortgage. Much like a primary mortgage, a second mortgage is a loan borrowed against a piece of property. Although there are several advantages of taking out a second mortgage, there are also a few drawbacks. As such, it’s wise to consider this situation from all angles before proceeding. Here are just a few factors to keep in mind when trying to decide. 

Financial Considerations 

What are the financial implications of taking out a second mortgage? Would you be able to put the funds toward your first mortgage so you could eliminate PMI (private mortgage insurance) obligations? Perhaps you plan on using the loan to pay off high-interest debt. In either scenario, performing a few simple calculations should be enough to help you determine if proceeding will be a savvy financial decision based on current and projected market conditions. 

Weighing the Risks

Maybe you want to take out a second mortgage to complete a major home renovation. Although the remodel might increase the property’s overall value, taking out a second mortgage to finance it is riskier than using the loan to pay off debt. As a result, deciding whether it’s a good idea will come down to more than just simple math. Your personal stance on risk aversion will also play a role when it comes time to decide. 

It’s important to consider the possible outcomes of financing renovations that aren’t completely necessary. If you overextend yourself, you could end up facing foreclosure. Thankfully, the IRS provides some relief for those who want to take out a second mortgage to remodel their home. As long as you use the funds for home improvement or repairs, you may deduct the loan’s interest. 

If you’ve decided to take out a second mortgage, turn to Armstrong County Building & Loan Association in Ford City, PA. Since 1925, they've been serving the community of Armstrong County by offering affordable financial services with competitive rates. To explore all the products they offer, visit their website. To discuss your needs with a member of their team, call (724) 763-7137.