What are the Pros and Cons of Bad Credit Second Mortgages?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 February 2020
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Bad credit second mortgages are sometimes used by homeowners as a way to deal with unanticipated expenses or even to consolidate a collection of debts into one easy-to-maintain obligation. Second mortgages of this type are usually granted to individuals who have managed to remain current on the primary mortgage but are having financial difficulties due to a number of issues, including recent job losses or illnesses that interrupted the household income for a period of time. With this arrangement there are benefits like protecting the primary mortgage. At the same time, bad credit second mortgages do have the potential to create some short-term difficulties that could lead to making the homeowner’s financial condition worse rather than better.

One of the chief benefits of bad credit second mortgages is the ability to reorganize household debt so that it is more manageable. This approach is often used for debt consolidation. Taking out the second mortgage makes it possible to pay off unsecured debt such as credit cards, and maybe even eliminate car loans and other types of obligations. What is left is the monthly payment on the second mortgage, with that amount normally being much less than the cumulative amounts associated with all the now retired debts. When used properly and responsibly, bad credit second mortgages can take a great deal of financial pressure off households, making it possible to pay all remaining obligations with relative ease.


Another benefit of this type of mortgage arrangement is that it prevents any type of negative impact on the primary mortgage. Since the household debt is easier to manage once the second mortgage is granted, the chances of being late or missing payments on the primary mortgage are greatly reduced. This means that the homeowner gets to maintain his or her solid rating with the primary mortgage holder, a factor that is very important to rebuilding a damaged credit rating.

While the benefits of bad credit second mortgages are very attractive, it is important to keep in mind that there are also some potential liabilities with this type of financial arrangement. When used to consolidate debt, it is important to make changes in the way the household manages money. Failure to do so could mean that in a matter of months that credit card balances are once again high and the overall debt is threatening to crush the household. Typically, financial counseling to help develop a workable budget and learn how to stick to that budget are crucial to preventing the second mortgage from becoming just another debt that cannot be paid.

Also keep in mind that depending on the current circumstances and credit rating of the applicant, taking out a second mortgage will mean paying a higher rate of interest. This is because lenders of bad credit second mortgages are assuming a greater degree of risk. Make sure that the rate on the mortgage loan is lower than the current interest rates charged on the various debts that will be paid off with the proceeds from the loan. Doing so will actually save a little money and make it easier to pay the off the debt within terms, eventually allowing the household to enjoy a greater level of financial security.



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