Consumers who want to use the proceeds from a second mortgage loan to pay for an expense such as home renovation, college tuition or to start their own business should consider their options carefully. Make sure you are able to afford the payment you will be expected to make on the second mortgage loan each month.

Whether your second mortgage loan has an adjustable rate or a fixed one, you need to be cognizant of how the additional expense will fit into your monthly budget. Consumers should be careful not to “bite off more than they can chew” when it comes to taking out a loan that will be secured by their home. Remember that if you miss monthly payments and allow your loan to fall into default, the lending institution will have no recourse but to repossess your home.

Do not depend on the lending institution to determine how much you can afford to borrow. While most reputable lenders will make a good faith effort not to loan a consumer more than they can afford to borrow, in the end it is the individual’s responsibility to be aware of their own financial situation, especially when it comes to the details of monthly budgeting.

If you do decide on an adjustable rate second mortgage loan, plan your monthly budget to accommodate any shifts your monthly payment may make relevant to changes in the indexed interest rate. Do not make the mistake of thinking that “friendly” interest rates will continue indefinitely. Anticipate the worst case scenario and plan accordingly. If this means you end up with a little extra money in the budget some months, put it aside in an interest-bearing account as a hedge against a “rainy day”.