When second mortgages go wrong

When second mortgages go wrong

If you have a lot of debt, taking out a second mortgage may seem like a great way of getting out of that debt. It means you can use the equity in your home to get yourself out of a sticky situation. However, sometimes your plans go wrong. This usually happens when you don't find a solution to the problem that prompted you to refinance. For example, if your spending incurs a high level of credit card debt, you might be tempted to get a second mortgage in order to get a more manageable rate of interest. However, if you continue spending in the same manner after securing a second mortgage, you will incur further credit card debt and end up in a worse situation than before. Bad credit ratings are one thing but when those refinance warnings - "Your home is at risk if you do not keep up repayments on your mortgage" - suddenly leap out of the small print and become reality, things can get even worse .

If you find yourself unable to keep up the repayments on your second mortgage, you need to take action. It's very tempting to bury your head in the sand, but ignoring the problem will make things worse in the long run. Begin by talking to your mortgage lender. Ask if it's possible to change your mortgage plan so that you can make smaller repayments until you get back on your feet. This will almost certainly mean that you pay more money to the lender in the long run. If you can't pay at this time you'll end up with a bad credit rating but it's better than losing your home. However, you need to decide whether or not it's worth paying more to avoid losing the house. Our page on refinancing second mortgages gives more information about the options open to you.

The key to dealing with the situation is to be realistic, about your present situation and about the future. A realistic attitude will stop you getting into deeper debt. It's tempting to take on a high-interest loan to help you keep up the second mortgage repayments, telling yourself that you'll pay off the loan as soon as you find a better-paid job. But how likely is it that you'll suddenly start earning enough to pay it all off? Avoid taking on extra loans if possible, and ignore advertisements that claim to have the magic solution to your debt problems. There is no magic solution, and most of these "debt consolidation" companies are just out to get even more of your money.

Useful resources for dealing with bad credit and troublesome second mortgages (USA):

* The National Foundation for Credit Counseling (www.nfcc.org) sets the national standard for credit counseling. If you use a counseling agency, it should be accredited by the NFCC. The NFCC also offer debt advice at www.debtadvice.org

* The Consumer Credit Counseling Service (www.cccs.net) is a non-profit credit counseling agency accredited by the NFCC. They do charge for their services, but these charges are among the lowest in the business and will be explained to you in full before you take advice. You have the choice of being counseled in person, over the Internet or by telephone.

* Springboard (www.credit.org) is a California-based non-profit credit counseling agency accredited by the NFCC. Its most widely used service is the Debt Management Plan.

* Myvesta is a non-profit consumer education organization offering credit reports. See www.myvesta.org to look at your credit score and learn all about debt.

* The Federal Trade Commission (www.ftc.gov) provides a wide range of financial information and credit help, as well as instructions on how to obtain free credit reports.

When second mortgages go wrong

Useful resources for dealing with bad credit and troublesome second mortgages (USA):

© AskFinancially.com 2008

Mortgage Refinancing

Insurance & Loans

Copyright

When second mortgages go wrong

Useful resources for dealing with bad credit and troublesome second mortgages (USA):

© AskFinancially.com 2008

Mortgage Refinancing

Insurance & Loans

Copyright