Second mortgages or home equity loans are taken for short-term investment purposes or long-term needs like holiday homes or future properties for your children. People who want to take a second mortgage can borrow money from the bank based on their home's value. Second mortgages can significantly increase short-term income, but may pose certain risks if not considered well. Here are some facts about second mortgages to help you become well-informed homeowners.

Criteria for Application

Lenders refer to different factors when considering people who apply for second mortgages. The amount that can be borrowed largely depends on a person's home's equity--the difference between the current appraisal value and the actual amount the homeowner paid for the property. Most lenders allow homeowners to take a second mortgage if the loan-to-value ratio of the first and second loan is equal to eighty-five percent of the property's current market value. Lenders also consider your income and credit score before allowing you to take a second mortgage.

Applications

In some situations, people take a second mortgage when undergoing a sudden financial crisis. For example, those who have accumulated substantial medical or credit card bills can get a second mortgage to pay for their debts. Entrepreneurs and business owners who need a large amount of cash for an investment can also use second mortgages, as well as those who need to pay for pre-owned or brand new cars as well as costly vacations and trips.

Effects

Individuals who go into a second mortgage understand what they are doing and have a firm financial plan to pay the loan in time. However, those who do not have solid repayment plans may have a hard time finding a willing company who can loan them money. If you can't adjust to changes in mortgage payments, you need to consult Georgia mortgage lenders to know your best options. If not planned well, your second mortgage can turn into foreclosure or even bankruptcy.

Benefits

Applying for a second mortgage allows you to borrow a large sum of money that you can use for different business, family, or personal interests. Reliable Georgia mortgage lenders provide second mortgages that allow homeowners to deduct a substantial percentage of the interest when filing for federal taxes. You can maximize these benefits as long as you know the right strategy.

Caution

Since second mortgages depend on your home's equity, you're also putting your home or property up as collateral. If you default on payments, the bank can foreclose your property and render you homeless. You should also have good FICO scores to get reasonable interest rates. Consult reliable and experienced Georgia mortgage lenders to avoid unfavorable situations.