Any major financial decision should be thoughtfully considered and analyzed. The last few years have felt like a financial roller coaster for many homeowners. None of the old rules seem to apply in today’s market.

For homeowners being squeezed by today’s economic uncertainties, second mortgages on their home have provided a much needed lifeline as they navigate the new realities. A second mortgage is a loan made to a homeowner, secured by the equity they have built up in their home. This loan provides up front cash, which is paid back in monthly installments, over an agreed upon period of time. So when does a second mortgage make sense for a homeowner and how are they most commonly used?

Common uses of second mortgages include:

• College expense payments
• Consolidating other outstanding higher interest rate debt.
• Converting high interest credit card repayments to more affordable interest rates, that are tax deductible.
• Major household repairs or renovations
• Kitchen and bathroom upgrades, bedroom or bathroom additions, backyard decks and pools.

Household renovations are many times seen as a good investment for second mortgages, as they will many times pay for themselves. Homeowners are re-investing in their biggest asset and increasing the overall value of the property.

Be prepared for the steps required to secure a second mortgage. Paperwork, home appraisals, income verification, and credit applications are all part of the process in securing a second mortgage. And because it is an important financial decision, we encourage all of our customers to carefully evaluate different loan offers to ensure you are securing a loan that best meets your individual requirements, and is structured in such a way to allow you to meet the terms of the new financial agreement. Pay close attention to the total loan amount, length of the loan, annual percentage rate (APR), and specific terms, such as late penalties or prepayment penalties. We try to make it as painless as possible for you, and in most cases, can have an approval to you in one week.

Top 5 questions to ask:

1. What is the APR? Is the loan an adjustable rate loan, or fixed rate?
2. If adjustable, what are the reset points for the loan?
3. Is there a cap on the amount that the interest rate can be increased? Lifetime cap?
4. What is the length of the loan?
5. When are you required to begin repayment of the loan? Monthly payments? Late fees?

Taking out a second mortgage is done by most homeowners as a method to achieve a specific short term goal. Whether you are striving to consolidate high interest loans, pay a short term obligation, or upgrade a certain portion of your life, a second mortgage can be an affordable and cost effective way to achieve these shorter term goals. Make sure you do your homework, and get the right loan for you, at the right terms. Make sure you understand any up front costs, or built in fees that increase your financial obligation. Timely and consistent repayment of a second mortgage allows you to demonstrate financial responsibility and build a solid credit history.

Second mortgages can be a smart, cost effective way to bridge short term cash flow issues, while rebuilding credit, and weathering downturns in your personal life.