How do you even meet the requirements for a second mortgage, what is a second mortgage, and why would you want a second mortgage? Well, the answers here are as varied as the consumers who apply for such mortgages. Many times consumers need a second mortgage to make improvements on their home. Many times consumers need a second mortgage to put their kid to college. And sometimes, consumers need a second mortgage to start a business. The reasons given here for obtaining a second mortgage enlarge the value of the home, provide opportunity as an investment in your child’s future, or provide the opportunity to enlarge income. These are the original and most useful reasons for obtaining a second mortgage.
Are they the only reasons consumers take second mortgages? No. Today’s market has been a great influx of second mortgages to pay off credit card debt, to purchase new car, or to simply take a vacation. Should consumers receive a second mortgage for those reasons? Absolutely. Should consumers in fact ask for a second mortgage for those reasons? Absolutely not.
An educated consumer understands the consequence of a second mortgage. The educated consumer understands the price of the second mortgage. What is the price of the second mortgage? The equity in your home. When you apply for a second mortgage, you’re trading the equity in your home for cash. You’re giving up your investments.
If you’re trading your savings, in order take a step up, you’ve made the right decision. If you’re trading your savings for a frivolous expense, you’ve made the wrong choice. That’s how you determine if your second mortgage is your friend or your foe.
Today’s purchaser is acquiring second mortgages that for many will prove to be their foe. They’re not increasing the value of the home; they’re not educating their children. Nor are they increasing their income earning potential, they’re simply spending their savings. Rising real estate prices, rising availability of mortgage products, and the decline of savings for the public as a whole is creating the “bubble” effect. The bubble effect occurs when prices rise, spending rises, at a rate greater than can be supported on a long-term basis. At some point, the bubble bursts.
Your second mortgage, if used to enlarge the value of your home, will have insulated you against the drop in price. Your home is in fact worth more; so, if prices drop you’re protected. This was the original intent of the second mortgage; to provide the consumer with easy access to the funds accumulated in their home for home improvements, emergency events, or in order to better their homes or lives. You know for the most part consumers do not save money in a savings account; consumers only save money when they aren’t aware that they’re saving money. Home equity was one of the last hidden ways consumers were saving. Second mortgages and other loan mortgage products have managed to eliminate those savings as well. Has the consumer stop to contemplate the consequence of negative saving? Absolutely not, and our existing system of mortgage lending encourages negative savings.
Second mortgages are a great way to access your savings and enlarge your income tax deductions; they are one of the greatest tools available for financial planning and beneficial consumer spending. They are besides the fastest way to spend yourself in to debt under socially acceptable circumstances. Many consumers receive offers for credit card counseling, debt consolidation counseling, and financial analysis. There are never any offers to counsel the consumer concerning their choice in mortgage products, the choice of second mortgages, or the consequence of those choices. Your decision to and a second mortgage can be one of the best decisions you’ve ever made or your decision can be one based on folly and frivolous spending. Now, your second mortgage, is it your friend or your foe?
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