The main disadvantage with second mortgages is that you are risking your home by using one. This is a serious risk: if you can’t pay the loan back, a second mortgage can be catastrophic. Make sure that your intended use of funds is worth the risk you’re taking by using a second mortgage.
Another drawback is that second mortgages have slightly higher rates than senior mortgage rates. This is because the second mortgage won’t be paid until the first one is (in the event of a default). Because the loan is riskier than a plain-vanilla mortgage, the rate is higher. However, the rate may be lower than alternative sources like credit cards.
Finally, you may have to pay hefty second mortgage fees. There are a lot of hoops to jump through and services to pay for. Depending on how much you need and how long you’ll need it, a second mortgage may not work simply because of the fees.
Manage Your Mortgage's Closing Costs
Where to Find Second Mortgages
You can find a second mortgage almost anywhere. These are big-ticket loans that lenders love. A good start is to shop a second mortgage with an institution you’re already working with – like your existing bank or credit union. Or, you can try to get your second mortgage from the lender that has your primary mortgage. This way, you can hopefully save a few bucks on fees.
