A second mortgage is a way for you to tap into your home’s equity to get much-needed funds for large-scale purchases like college tuition, home improvements, high-interest debt, and others. It’s called a second mortgage because if you were unable to pay your mortgages and the bank sells your house, the purchase loan (first mortgage) would get paid first and the second mortgage would receive any leftover funds. When consulting a mortgage broker Mississauga residents may want to know what the benefits are to a second mortgage. Here are four advantages to taking out that extra loan.

A Large Amount of Money May Be Available

Getting a second mortgage gives you access to a significant amount of money quickly because your house is usually relatively valuable. If you need an infusion of cash to purchase something big, like buying a business, paying for a major repair, or even financing a wedding, a second mortgage can allow you to do it. You’re able to take advantage of an opportunity when it comes your way, even if you don’t have significant savings. You can get a second mortgage in one lump sum, which you would pay off in monthly installments, or as a HELOC, or home equity line of credit, which is basically an amount of money you have available should you need it.

The Interest Rate is Usually Lower

Home loans usually have lower interest rates than other types of debt. For example, your credit cards likely have upwards of 10%, with the average rate currently hovering around 16%. Home loans are currently below 5%, which can make a huge difference in the total amount you end up paying by the time you’ve paid off the entire amount. Personal loans typically have lower rates than credit cards, but they are still higher than mortgages because they are unsecured. Using your home as collateral helps keep the rates low.

Tax Benefits

In some cases, the interest you pay on your mortgage can be deducted from your taxes, although this isn’t always true, so be sure to consult a tax professional before taking it as a deduction. You may be required to use the money for major home improvements for it to be considered tax deductible, but if you’re already planning to make some improvements around your house anyway, you might as well use your low-interest, tax-deductible equity to get them done.

Consolidate Other High Interest Debts

One of the best ways to use a second mortgage is to consolidate your other debts that have higher interest rates. If you look at the amount you’ll end up paying on your credit card debt compared with what you’ll end up paying if you have that debt as a second mortgage, you’ll be shocked at how much you can save. Taking out a second mortgage can be a smart way to handle debt and get yourself back on solid financial ground. However, you don’t want to rack up more debt once you take out the second mortgage, so make sure you have a plan for expenses going forward.

Conclusion

While it may seem like taking out more money with a second mortgage just adds more debt to your life, it can actually help you afford things you can’t put off or get you out of high-interest debt. If you have a major expense coming up that you’re unsure how you’re going to pay for it, talk to a mortgage broker today for advice.