When a second mortgage is necessary

House next to bundles of money

No one wants to go further in debt.

And the recent housing crisis has shown the dangers of taking a second mortgage or a home equity line of credit out to finance things like a home renovation project. But there might be instances when you have no other option when you need access to cash:

Medical bills. There is a 1-in-3 chance you will become disabled and unable to work for several months before you reach the age of 65. If you do not have adequate health insurance, you may find yourself struggling to pay large medical bills not covered by your health insurance. A second mortgage can help you pay off your medical bills with the equity you have built up on your home.

College education. If you have not saved enough for your child’s education, you can consider using your home’s equity to pay for school instead. While not ideal, a second home loan may be a better choice than a student loan.

Bankruptcy. If you face possible bankruptcy, you might want to consider tapping equity that you have built up in your home. A second loan may be the debt consolidation loan that you need to combine all of your high interest loans into one easy-to-manage payment at a lower total interest rate.

Every family should have an emergency fund of three to six months of living expenses set aside. But if you do not have an adequate emergency fund, you may find yourself needing to tap into your home’s equity.

Using your home equity as an emergency fund is not the best method, but it can be used as a backup plan if absolutely needed.

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