How to Take Out Second Mortgages

2nd mortgages are not to be taken lightly, but done for the right reasons, they can provide financial relief at a tough time, or venture capital to spend on new business.

There are a few rules to know about 2nd mortgages, and some guidelines to borrow against home equity safely.

Here's how to take out 2nd mortgages.Things You'll Need:

• Over 50% equity in your home
• 6 months mortgage emergency fund

1. Use 2nd mortgages cautiously to get out of debt.

   Timeliness is of the essence with 2nd mortgages.

   Home equity is a funny thing, and you need to make sure that you have a cushion. You should have at least 50% equity at the time you take a 2nd mortgage, and try to stay away from any home loan that is more than 125% of your home, unless it is an investment property. Borrow 35% max on a primary residence.

2. Check the interest rates of 2nd mortgages.

   Check interest rates.

   You will pay higher interest rates on 2nd mortgages, as well as closing costs of about 5% of the money borrowed. That's a steep price.

   Before you use 2nd mortgages to try to clear credit card debt or start a new venture, see if there are costs you can cut or creditors you can talk to first.

   Use http://www.zillow.com/Mortgage_Rates/ to get up to the minute interest rates for 2nd mortgages. They change quickly.

3. Insist on a fixed rate for 2nd mortgages.

   After you've checked both your equity and the macroeconomic situation to make sure taking out 2nd mortgages is what you want to do, it's time to do the tax numbers.

   You do get to deduct the interest paid on 2nd mortgages from taxes, and if you get rid of high interest debt, it can be a good move. However, make sure that you're not doing it just to get a tax deduction and that the interest rates you are clearing are higher than your mortgage rate.

   You can do this easiest by insisting on a fixed rate for 2nd mortgages.

4. Subordinate 2nd mortgages.

   The last step to getting the best from 2nd mortgages is to subordinate the 2nd mortgage to the 1st. 2nd mortgages are sure to have higher interest rates, and by subordinating it, you make sure that it is the one you pay second, not first (meaning if you ever run into trouble, you won't be on the hook for 8-10% interest or losing your home.)

   But this won't matter, because you've got your 6 months of emergency mortgage expenses tucked away, right?

Resources

• Make a Fortune in 2nd Mortgages