Another serious financial myth is that second mortgages are a good idea. We should follow the same line of thinking as when we discussed business debt: If you are already wealthy, you MIGHT use a second mortgage for some wise purpose. Everyone else should entirely avoid second mortgages.
PRINCIPLE 32: If you are not wealthy, do not get sucked into using second mortgages.*
Most second mortgages can also be called Home Equity Lines of Credit (or “HELOCs”). This is where you borrow against the available equity of your home for other purchases. This is a line of credit that you can draw against to make purchases, similar to how you would use a credit card. This is a really bad idea as most people will become tempted to purchase unnecessary items with this equity. But instead of only negative marks against your credit score when you don’t pay, second mortgages act as a lien against your home. So simply put, you can lose your actual home because you stopped making payments on your jet-ski.
*Principle from Financial Fitness: The Offense, Defense, and Playing Field of Personal Finance
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