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Second Mortgage: How Do You Even Qualify?
By Hans
When you think about a second mortgage, what do you think of first? Which aspects of a second are important, which are essential, and which ones can you take or leave? You be the judge.
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 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 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 to make improvements on their home. Many times consumers need a second to put their child to college. And sometimes, consumers need a second to start a business. The reasons given here for obtaining a second 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 for those reasons? Absolutely. Should consumers actually ask for a second for those reasons? Absolutely not.
If you find yourself confused by what you've read to this point, don't despair. Everything should be crystal clear by the time you finish.
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 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 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 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 lending encourages negative savings.
There's a lot to understand about a second mortgage. We were able to provide you with some of the facts above, but there is still plenty more to read about in in our article directory.
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