Second Mortgages: Friend or Foe?
Great news! You qualify for a second mortgage. Now what would
you like to do with the second mortgage? It will be your answer
to this question that determines whether or not your second
mortgage is your friend, or your foe. That seems to be an
awfully strange way to look in a second mortgage; however that's
exactly what the mortgage will be your friend or your foe.
How do you even qualify 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 child to college. And sometimes, consumers
need a second mortgage to start a business. The reasons given
here for obtaining a second mortgage increase the value of the
home, provide opportunity as an investment in your child's
future, or provide the opportunity to increase income. These are
the original and most beneficial reasons for obtaining a second
mortgage.
Are they the only reasons consumers obtain second mortgages? No.
Today's market has been a great influx of second mortgages to
pay off credit card debt, to buy new car, or to simply take a
vacation. Should consumers receive a second mortgage for those
reasons? Absolutely. Should consumers actually 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 savings.
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 decision. That's how
you determine if your second mortgage is your friend or your foe.
Today's consumer 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, increasing
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 increase the value of your
home, will have insulated you against the drop in price. Your
home is actually worth more; therefore, if prices drop you're
protected. This was the original intent of the second mortgage;
to provide the consumer with easy access to the savings
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 current system of mortgage
lending encourages negative savings.
Second mortgages are a great way to access your savings and
increase your income tax deductions; they are one of the
greatest tools available for financial planning and beneficial
consumer spending. They are also 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 option 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?