Second Mortgage or another line of credit?

Question

I just found out that because I've exceeded my line of credit 2 times in 6 months, Bank of America wants to jack my APR up to 32% intrest. I've been with them for 4-5 years now and they are unwilling to work with me even though I've never had a late payment or exceeded the credit limit before.
The balance is substantial. I'm afraid that no one will extend me a line of credit large enough to cover my balance. Should I look into taking out a second mortgage on the house I've been in for 1.5 years? What are my other options? What's the downside to a second mortgage?
Thanks!

Actually the reason I've wracked up such debt is because I go through spells of depression/spending. If it's available when I'm down, I spend. I pay it back later. It hasn't been a problem up until recently when a few medical bills and a fiasco or two occured.

Answer 1

A lot depends on the amount of equity you currently have in the property. It may be that your home's value has increased sufficiently to support a new line of credit with another lender. An appraisal would be required to determine that, but an appraisal would also be required to obtain a second mortgage.

A line of credit is usually originated as an adjustable rate loan based upon the current prime rate plus perhaps an add on for loan to value or credit score. Some offer the ability to covert some or all of that line of credit into a fixed rate second mortgage at specific time of opportunity during the loan term.

A second mortgage is a fixed rate loan, usually a 15 year term. The rate is usually higher than that of a line of credit but the rate will not fluctuate as the prime rate adjusts.

If your current line of credit is an unsecured line of credit, your current bank might consider converting it to a line of credit secured by a 2nd lien against your home.

If they won't, call me, I'll help you figure out which way suits your needs best at no charge.

Answer 2

First of all, be aware that the tax write-off (at a federal level) for home equity mortgages (either a fixed second mortgage or a home equity line of credit) stops after the first $100k.

Secondly, before you take out a second mortgage, ask yourself why you exceeded your limit. Are your current payments right at the edge of what you can afford? Defaulting on an unsecured line of credit will hurt your credit score (and can result in a judgment), but defaulting on your mortgage will lose you your home. Don't throw good money after bad, as they say.

Before signing on a new mortgage, figure out how long you could keep making payments against the house if you lost your job tomorrow (keeping in mind you're still gonna have to pay for electricity, gas, a phone, feeding the kids, etc). If that number is less than 6 months, think hard before your sign, because that's how long it takes the average person to find a new job when they become unemployed. Be doubly careful if you are depending on income from your partner or spouse--now there's risk of illness, injury, or loss of job from two people.

Answer 3

A second mortgage can indeed be the answer. There are many factors that might make it not the best idea though as well. The interest on the second mortgage is a tax deduction. Your credit card interest is not. If it cleans your slate witht the creditor it may be a very good idea. I would bet that that B of A would extend your line at the lower rate if you paid it off but did not use for 6-9 months. they will want you back. If you have any questions let me know. Your original mortgage may be on an aRM or interets only and a complete refi may be an even better option. Again many factors.

Answer 4

The second mortgage will depend on how much equity you have in the house. If you didn't put a lot of down payment (less then 10%) and considering that you have been there less then two years then maybe even they will not be able to extend you second mortgage because you don't have enough equity for that. I agree with what the others said-find a second, even third job, get yourself out of this debt as soon as you can and start managing your life a little better, so you will not need to live on loans. Good luck.

Answer 5

different mortgage solutions exists, I have outlined some below

(I would also suggest you read : http://umgarticles.atspace.com/mortgage.htm

Pension Plan
Using a pension plan to accumulate the balance of your mortgage is a tax free saving scheme. The balance of your house will be saved over a period of time until you can pay your final balance. If you do intend to use a pension fund to save for the balance of your house, consideration should be taken into account to open another pension fund for retirement purposes too.

ISA Plan
With an ISA plan you invest in stocks and shares via an Individual Savings Account (ISA) - which is a tax-free method of saving. This method of saving may not be suitable for most borrowers. Before considering this option you should consult with an independent financial adviser.
Endowment
An endowment is still the most common type of interest only mortgage which also provides life assurance cover and a fixed payment for investment. The endowment policy along with the interest only mortgage should in effect end at the same time, leaving you with the ownership of your home and nothing to pay. Endowments have undergone much criticism; this is due to investors being promised high returns from their investments. However lately this has not been the case, borrowers have found their investments have been as good as expected and a shortfall in the end amount of invested cash will not match the amount owed on the current property.
Taking into account the recent problems that have arisen regarding endowment policies it is worth remembering that returns on endowment policies have been pretty good, however you do need to see the term out in full. Also endowments do provide life assurance as part of the actual policy, so in the unfortunate event of a death the mortgage balance is paid in full.
Advantages of an interest only mortgage
• Your investments and savings could accumulate more than the required amount to cover the final payment; this could leave you more cash for your own personal use.
• Some plans have good tax benefits and help reach the required amount it a quicker and cheaper rate.
Disadvantages of an interest only mortgage
• In the unfortunate event of your investments not acquiring the designated amount of cash to cover the loan repayment, the investor could face a shortfall which they will then need to pay. If you are worried about a shortfall on your investment, you should keep in touch with your investor and request regular updates on the situation of your endowment. If the worst comes to the worst, you can increase payments to compensate for the loss of investment.
• Cashing in your endowment, ISA or pension could have adverse effects on the amount of money you have saved over the past however many years. If you do decide to cash in any existing policies you may be subjected to a penalty, this could be a cash amount specified by the investment company/lender. Please seek professional advice if you are worried about the end results of your finances, don’t be too hasty as most policies accumulate more of the cash in the final year

for a complete informational package I suggest you visit one of the many mortgage informational sites the best free one in my opinion is :

also read http://umgarticles.atspace.com/mortgage.htm

Answer 6

You need to change your lifestyle and get out of debt.

go to www.daveramsey.com and read his book. It tellls you how to get out of debt and stay out.

Good Luck

Answer 7

How about taking on another (second) job? You are digging yourself quite a hole!