Is a second mortgage a bad idea?

You've seen the letters in the mail. They're offering you money based on the equity that you've built up in your home.

The interest rate seems attractive enough, and you could use the money. There are always repairs to be made and other expenses. So, is a second mortgage a good or bad idea?

It all depends -- but second mortgages do have some disadvantages. Until you've paid off your entire mortgage, you and the bank co-own your house. Your mortgage is considered a secured lien on your property.

A second mortgage, on the other hand, digs into the equity that you've been building over time. The equity is the principal that you've paid off on your house, so it usually includes your down payment and whatever else you've built up over time.

The major advantage of a second mortgage is that you can often get access to your equity at a reasonable interest rate. If you use the equity for home repairs (particularly if you plan to sell it in the near future), you'll probably be fine.

The major risk of a second mortgage is that you could quickly find yourself overwhelmed and unable to afford the dual payments. While those ads that come in the mail are attractive, they don't usually give you the whole picture.

It can be expensive just to to go through the application process for a second mortgage. The monthly payments on top of your existing mortgage can also be hard to handle. At that point, you could easily default on the loan and throw yourself into foreclosure.

If you're unsure about your risks and liabilities regarding an existing second mortgage or one that you're contemplating, find out more about your legal rights.