Question:

Is second mortgage financing riskier?

Answer:

Well, people nowadays are cashing on their equity very carelessly. They are using second mortgage financing as a cheaper way to get a car or go on a vacation or for other suspicious purposes, as the second mortgage interest is one of the last tax-deductible loans left since credit cards rates were removed from tax deduction.

As there is only little difference between a second mortgage and a HELOC, consider them both as home equity loans. Yes, home equity or second mortgage financing will be dangerous these days. Home values are expected to depreciate and if you don't have enough equity, you might have to bring cash in order to even sell your house.

To avoid getting trapped in your house, you should pay off as much of the second mortgage as possible, so that you build some equity. Essentially, it is recommended that nowadays you avoid using up your equity unless absolutely needed as depreciation of equity might put your home in danger.

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