Skip to content

The pros and cons of taking out a second mortgage

BY Rachel | 20 July, 2017 | no comments

A second mortgage, otherwise known as a home equity loan, allows you to draw on your home’s equity to get cash. You might be considering a second mortgage to allow you to undertake home improvements or education using a low interest rate loan. With the Telegraph claiming one in seven borrowers now take out a mortgage for 35 years, can you face more repayments? Is a second mortgage really worth risking your home?


  1. Lower interest rate
    One of the biggest reasons people consider a second mortgage is because they often have lower interest rate than any other type of debt. This is because you are securing the loan against your house, so you reduce the risk for your lender. For second mortgages interest rates are generally in the single figures, which is almost never the case for debts such as credit cards.
  2. Quick cash, great rate
    On the surface, a second mortgage feels like a win-win situation. It can help you do something you’ve always wanted to, such as setting up your own business, helping you cover the start-up costs, or to fund your child’s University education. It can also be used for home improvements which improve the equity of your home in the long term. Perhaps you might decide on some new doors from Doors Plus, maybe you need a paint job or even some new countertops. The list goes on for examples of these improvements, big and small. In fact it is estimated that a home improvement project can return between 48-101% of the project cost at resale.
  3. Tax benefits
    It is possible that you could get a tax deduction for the interest paid on your second mortgage. However, as the conditions under which this is applied are complicated and very specific, always consult a professional first about your personal situation.1


  1. Cost
    Second mortgages can be very expensive. While the interest rates are lower than what is typical for a credit card, they will certainly be higher than those on your first mortgage. This is because this lender is taking more risk than the lender of your first mortgage. If you stop making payments, they will not receive their money until the first lender has received theirs. Make sure you also taking closing costs, the fees paid at the closing of a real estate transaction, into account.

In order to decide if a second mortgage is the right decision for you, it is vital that you speak to a mortgage advisor in Barnsley. This decision should not be taken lightly, and they will be able to offer you valuable and most importantly, personal advice.

  1. Risk of foreclosure
    While the pros that we have listed do portray a second mortgage as a good idea, you need to consider if the reason you are taking one out is worth the risk of losing your home. If you fail to keep up with the payments, your lender can take your home through foreclosure. Therefore, taking out a second mortgage to cover regular living expenses or entertainment is widely discouraged. The risk is too high.

You need to be sure that you will be able to keep up with the repayments before considering this loan. Frivolous spending can lead to more debt so do not take out this loan for non-essentials.