One way homeowners can simplify their monthly
expenses is by using a second mortgage for debt consolidation. If you find
yourself overwhelmed with various bills and getting nowhere closer to paying
off your loans because of steep interest rates, a second mortgage may be a
But first, what is debt consolidation? Debt
consolidation is essentially using a home equity mortgage loan to combine
several debts or refinance an existing or new mortgage. By freeing up the
equity you have accumulated in your home, you can reduce the number of bills
into one convenient monthly mortgage payment.
And what is a second mortgage? A second
mortgage is exactly that, a mortgage that is secondary to your first mortgage.
It is a home equity loan where you can borrow sums of cash against the equity
your home has accumulated. Equity is calculated by taking the market value of
your home minus the amount you currently owe on your first mortgage. A second
mortgage can be a fantastic option to access large sums of cash for major home
renovations or financing a child’s post-secondary education. It is particularly
useful for those who have only a few years left on their existing mortgage or
have built up substantial equity over the years.
What Are the
Advantages of Using a Second Mortgage for Debt Consolidation
1. Lower Interest Rates
Although the interest rates for a second mortgage
are going to be more than your first mortgage, it is still often much lower
than the rates attached to traditional credit cards (which can be as high as
20%) and private loans. If you find your monthly payments are barely chipping
away at the principal and getting sucked up by the interest rate fees, it may
be time to consider consolidating your debts into a second mortgage. Lower
interest rates mean more money saved in the long run.
2. Lower Monthly Payments
In addition to lower interest rates, consolidating
your debt into a second mortgage will often lower your overall monthly
payments. This will allow you to allocate freed-up income to other areas of
your budget, such as home improvements or increasing your debt payments.
Remember though, you will still need to pay for your original mortgage as well
as your second, so crunch the numbers to see if this option works with your budget.
3. Simplified Bills and Budgeting
Budgeting and keeping track of your bills is half
the battle when it comes to managing your debts. It’s easy to become
overwhelmed by multiple bills coming in from different lenders with varying
terms and conditions. Consolidating your debts into one monthly payment will
provide ease of mind and reduce the stress when it comes to balancing the
If you are considering using a second mortgage for
debt consolidation, take the time to speak with a qualified mortgage specialist
to determine if it is the right choice. Whenever you are involving your home with
your finances, you are essentially putting it up as collateral. Always go into
the decision aware of all other alternatives and the terms and conditions that
come with a second mortgage.