In recent years, second mortgages have been a popular method for homeowners to borrow money against the value of their homes. While there are many advantages to taking out a second mortgage, such as making home improvements or consolidating debt, there are still significant risks involved, beyond the obvious risk of losing your home. If you are considering a second mortgage as a means to borrow money, the experts at Aspendance Realty recommend that you bear in mind the following potential disadvantages:

Interest rates are usually higher than those found on first mortgages, sometimes well into the double digits, depending on your credit rating. If you need additional cash, it might be better to stick to a single mortgage by refinancing the first mortgage with a higher amount.

If you have an adjustable rate second mortgage, the interest rate will be tied to an index such as the prime rate or the LIBOR. That means, of course, that when the index moves up, your monthly payments will increase. If you are not sure that you could meet the higher payments if rates increase a few percentage points, then it might be wise to stick to a fixed-rate second mortgage, or refinance your primary mortgage as above.

Home equity lines and other second mortgages can come with a hefty assortment of additional fees, and sometimes hidden surprises such as early closure penalties or minimum draw amounts. Be certain that you read all the fine print, and get the fee disclosures clearly explained to you. You do not want to pay for fees or features that exceed your needs.

Once you have successfully received a second mortgage, the equity in your home is pretty well tapped out. You probably won’t have an opportunity to apply for a third mortgage to raise additional cash. Since you will no longer be able to rely on your home equity for a source of funds, be certain that you have sufficient cash reserves elsewhere, such as savings or other investments, to cover any sudden emergencies that arise.

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