What Protection Do You Lose With a Second Mortgage?

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If a second mortgage is taken out, the borrower has borrowed into a large portion of their equity in the property. Leave a cushion in equity for paying off debts or making home improvements with help from a financial specialist in this free video on mortgage assistance and personal finance.

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Video Transcript

Hi, this is Matt McKillen with Innovative Financial Group. The question that's posed today is what protection do you lose with a second mortgage on your home? Generally, I'd say the best way to address that would be is that if you've taken a second mortgage out on your property, you've basically borrowed into a good portion of your equity in the property. And equity is defined as the amount of value you have in your home that's not being leveraged by mortgage. For example, if your first and second total eighty thousand dollars, and your home is worth a hundred, if you were to sell it for a hundred, pay off your loans, that twenty percent or twenty thousand dollars is your equity. Well, if you take a second mortgage and you borrow ten or fifteen thousand dollars, basically what you're doing is, if your home does not increase in value, you need to sell it for some reason, transferring job, something...some life changing event, then you're not really protected the same way as you would be if you had that twenty to thirty percent equity factor in the property. So again, your best bet is to kind of leverage yourself. If you're going to pay off debts, or your going to do home improvements, you probably want to leave a cushion of equity in your property if, in event, there's a life changing event that you need to sell your home or something of that nature comes down your way. My name is Matt McKillen. I'm with Innovative Financial Group.

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