Second Mortgages: Friend or Foe?

Great news! Youqualify for a second mortgage. Now whatwould you like to do with the second mortgage? It will be your answer to this question that determines whether or notyour second mortgage is your friend, or your foe. That seems to be an awfully strange way tolook in a second mortgage; however that's exactly what the mortgage willbe. Your friend or your foe.

How do youeven qualify for a second mortgage, what is a second mortgage, and why wouldyou want a second mortgage? Well, theanswers here are as varied as the consumers who apply for such mortgages. Many times consumers need a second mortgageto make improvements on their home. Manytimes consumers need a second mortgage to put their child to college. And sometimes, consumers need a secondmortgage to start a business. Thereasons given here for obtaining a second mortgage increase the value of thehome, provide opportunity as an investment in your child's future, or providethe opportunity to increase income. These are the original and most beneficial reasons for obtaining asecond mortgage.

Are theythe only reasons consumers obtain second mortgages? No. Today's market has been a great influx of second mortgages to pay offcredit card debt, to buy new car, or to simply take a vacation. Should consumers receive a second mortgagefor those reasons? Absolutely. Should consumers actually ask for a secondmortgage for those reasons? Absolutelynot.

An educatedconsumer understands the consequence of a second mortgage. The educated consumer understands the priceof the second mortgage. What is theprice of the second mortgage? The equityin your home. When you apply for asecond mortgage, you're trading the equity in your home for cash. You're giving up your savings.

If you'retrading your savings, in order take a step up, you've made the rightdecision. If you're trading your savingsfor a frivolous expense, you've made the wrong decision. That's how you determine if your secondmortgage is your friend or your foe.

Today'sconsumer is acquiring second mortgages that for many will prove to be theirfoe. They're not increasing the value ofthe home; they’re not educating their children. Nor are they increasing their income earning potential, they're simplyspending their savings. Rising realestate prices, increasing availability of mortgage products, and the decline ofsavings 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-termbasis. At some point, the bubble bursts.

Your secondmortgage, if used to increase the value of your home, will have insulated youagainst the drop in price. Your home isactually worth more; therefore, if prices drop you’re protected. This was the original intent of the secondmortgage; to provide the consumer with easy access to the savings accumulatedin their home for home improvements, emergency events, or in order to bettertheir homes or lives. You know for themost part consumers do not save money in a savings account; consumers only savemoney when they aren’t aware that they're saving money. Home equity was one of the last hidden waysconsumers were saving. Second mortgagesand other loan mortgage products have managed to eliminate those savings aswell. Has the consumer stop to contemplate the consequence of negativesaving? Absolutely not, and our currentsystem of mortgage lending encourages negative savings.

Secondmortgages are a great way to access your savings and increase your income taxdeductions; they are one of the greatest tools available for financial planningand beneficial consumer spending. Theyare also the fastest way to spend yourself in to debt under socially acceptablecircumstances. Many consumers receiveoffers for credit card counseling, debt consolidation counseling, and financialanalysis. There are never any offers tocounsel the consumer concerning their choice in mortgage products, the optionof second mortgages, or the consequence of those choices. Your decision to and a second mortgage can beone of the best decisions you've ever made or your decision can be one based onfolly and frivolous spending. Now, yoursecond mortgage, is it your friend or your foe?