The most common usage of a second mortgage is to pay off high-interest consumer debt or to use the funds for home renovations or upgrades. With the average credit card interest rate being 15%, you could save a lot of money by leveraging a second mortgage.
If you have a credit card balance of $30,000, for instance, your minimum monthly payment will be around $600 a month (assuming a 3% minimum payment requirement). If your credit card interest rate is 15% APR, this will cost you about $4,500 in interest in just your first year, before you even touch the principal amount you owe.
So many people are adding a second mortgage, paying off the credit card with that, and then enjoying a much reduced interest rate because a second mortgage is secured by an asset: your home.
The power of interest-only payments
For many second mortgage products, you can elect to only make payments on the interest. This creates lower monthly payments, and allows you to have affordable access to the equity in your home before you are ready to sell.
Consider someone who wants to remodel before selling their home or renegotiating their primary mortgage. They can take second mortgage, use those funds to renovate, making interest-only payments. When it comes time to sell or renew, the home is valued at a higher price thanks to the renovations, and then the homeowner pays off the second mortgage.