Should You Apply For A Second Mortgage If You Have Bad Credit?
In this day and age, millions of people in the US and UK run into debt problems because they are over committed financially. As we all know, it is very common for someone to hold multiple credit cards, and pile up multiple loans on top. Add to that the mortgage, and every day expenditure, and you have a real need for budgeting. A need that most people ignore.
With no financial planning and budgeting, you can rest assured that many people will start to miss credit card or loan payments. The result of those missed payments, or late payments, is that the debtor ends up with a bad or poor credit record.
There is no doubt that a spoilt credit record can cause all sorts of headaches in the future. Further financing becomes more expensive, difficult and in extreme cases maybe impossible. In some countries it may mean difficulty in getting rented accommodation and other minor and major irritations.
Many people whose credit has turned bad will also have a significant asset in their lives: their home. While the home may be mortgaged, there is a chance they will have sufficient equity in the house to allow them to take out a second mortgage. Such a second mortgage can be used as a consolidation loan to put their financial planning in order.
Whether or not the second mortgage will be the best option for someone with bad credit will depend entirely on their own circumstances; the size of their debts, the size of their overdue payments, the length of time they are overdue and so on.
How, then, do you decide if a second mortgage is right for you? You do need to have a very clear idea of your current financial position. A couple of missed payments can cause an emotional reaction which may inflate your feeling of being in financial trouble. It may not be as bad as you thought; or, it may be worse and you will see how important it is to take positive action.
By listing out all your debts, and setting out a list of your monthly outgoings, you will start to see a clearer picture of where your finances stand. The list of monthly outgoings will form one side of your monthly budget; the other, of course, is your income. What your aim will be is to balance your home budget, or aim to have more money coming in than going out. So, you need to look at what your current situation is, and then look at the affect of consolidating the debts with a second mortgage.
Before making any decision on whether to apply for a second mortgage, it is wise to go through your existing outgoings to see where, if anywhere, you can make savings. If you can, and there is sufficient to pay off your overdue debts within a short space of time, say one or two months, then put your new budget plan into operation, and advise the relevant creditors what you are doing.
They may be less forceful with you if they can see you are acting responsibly. That way, you may be able to remove the need for a second mortgage, get your finances back in order, and then just be patient and restore your credit report score.
The same applies to your ability to earn more money. If you can get overtime or a small part time job in addition to your main job, then it is worth considering.
The advantage of cutting expenditure and getting extra income is that you can get your home budget into balance, and keep up future credit payments, without resorting to secured finance through the equity in your home. In other words, your main asset is left intact. Remember also that if you take out a second mortgage, the loan is secured to your home. Your risk of losing the home in the event of default increases.
If you have no option left but to get a second mortgage, then it is important to make sure you get the best deal you can. Some lenders who lend to people with a bad credit record do try to take advantage of your plight, with high charges and interest rates.
Remember, though, all lenders will assess the risk, and if your credit record is not perfect, it will mean a higher interest rate. It is a question of degree; you want to find the lender with the lowest surcharge for your credit record.