An Affordable Monthly Payment
Consumers who want to use the proceeds from a second
mortgage loan to pay for an expense such as home renovation,
college tuition or to start their own business should
consider their options carefully. Make sure you are
able to afford the payment you will be expected to make
on the second mortgage loan each month.
Whether your second mortgage loan has an adjustable
rate or a fixed one, you need to be cognizant of how
the additional expense will fit into your monthly budget.
Consumers should be careful not to “bite off more
than they can chew” when it comes to taking out
a loan that will be secured by their home. Remember
that if you miss monthly payments and allow your loan
to fall into default, the lending institution will have
no recourse but to repossess your home.
Do not depend on the lending institution to determine
how much you can afford to borrow. While most reputable
lenders will make a good faith effort not to loan a
consumer more than they can afford to borrow, in the
end it is the individual’s responsibility to be
aware of their own financial situation, especially when
it comes to the details of monthly budgeting.
If you do decide on an adjustable rate second mortgage
loan, plan your monthly budget to accommodate any shifts
your monthly payment may make relevant to changes in
the indexed interest rate. Do not make the mistake of
thinking that “friendly” interest rates
will continue indefinitely. Anticipate the worst case
scenario and plan accordingly. If this means you end
up with a little extra money in the budget some months,
put it aside in an interest-bearing account as a hedge
against a “rainy day”.