Whether you are thinking of making home improvements or simply want to avoid paying for private mortgage insurance, it’s possible that you, like many Utah residents, have thought of applying for a second home loan. A second mortgage taps into your home’s equity, which typically grows over time.
But does it make financial sense to apply for a second mortgage instead of considering other loan options? Here are three reasons it does.
1. You qualify for a larger amount
When applying for a second loan, you could get approved for a significantly larger amount of money without having to use your home as collateral. Your home is worth a lot of money, and most lenders will have no problem lending you up to 80% of its value if you use it to secure your second loan.
2. You enjoy better interest rates
Generally, a second mortgage comes with a much lower interest rate compared with other loan options in the market. That’s because your lender faces a significantly lower risk than they would without such valuable collateral as a home. Ideally, the interest rates are in single digits, while unsecured personal loans usually charge double-digit rates.
3. Second loans attract tax benefits
Usually, second mortgages attract a deduction for the interest charged. This is especially the case for a second mortgage that you are planning to use on substantial home improvements.
Having said that, it’s important to keep in mind that there are several technicalities involved, so consult a professional tax preparer prior to taking any deductions.
When in need of a substantial amount of money, one of the options you have is to apply for another loan. Given the benefits that second mortgages offer, it’s no wonder that many homeowners opt for them more than other loan options.