What is a 2nd Mortgage? [mortgageinsurance-101.blogspot.com]

What is a 2nd Mortgage? [mortgageinsurance-101.blogspot.com]

Michael Sarracini discusses the techniques and benefits of lending second mortgages.

mortgageinsurance-101.blogspot.com 2nd Mortgage Investing with Michael Sarracini

Many homeowners have received phone calls and mail inviting them to take advantage of lower interest rates on a 2nd mortgage.  However, they may not have a clear understanding of 2nd mortgages.  After all, what is a 2nd mortgage?  Does it mean you’re buying your home all over again?  How does it work and what is it for?  A 2nd mortgage is a loan that is secured by your home and is secondary to the first mortgage on the property.

 

Some people may not even know that real estate can have more than one loan against it.  It’s rare, but some properties even have more than two loans against it.  A 2nd mortgage is deemed as such because it is secondary to the first mortgage.  The first mortgage is always the loan to get paid off first if the buyer defaults and the property is sold in foreclosure. 

 

A 2nd mortgage usually has a higher interest rate than a first mortgage because it is viewed as being a riskier venture.  It is very important to remain current on the 2nd mortgage because if you default on the 2nd mortgage, the lienholder can and will foreclose on the property, whether the buyer is making payments on the first loan or not.  If the second lienholder forecloses, the proceeds from the sale of the property will be used to pay off the first mortgage and any funds left will be used to satisfy the 2nd mortgage.

 

A second mortgage is usually determined by the amount of equity that is in the home.  Equity is the difference between the market price of the home and the balance of any lien against it.

Usually, the higher amount of equity you have in your home, the higher the amount you can borrow in the 2nd mortgage. 

 

The length of time to repay a 2nd mortgage is usually shorter than for a first mortgage.  The repayment time can range anywhere from one year to 30 years, depending on the amount borrowed and the terms of the loan.  This type of loan is normally used to consolidate bills, pay for home repair or additional construction or remodeling.  It can also be used to finance a college education, pay for a vacation, or to finance a business startup.

 

The uses of a 2nd mortgage are not limited to any one specific use.  The money is used at the discretion of the borrower.  In obtaining a 2nd mortgage, you will not be repurchasing your home.  You will be using your home as collateral for the loan.  This is why it is very important to remain current on your payments.  If you default, your home will be sold in a foreclosure sale. 

 

Used wisely, a 2nd mortgage can help you get a better hold on your finances, increase your credit rating with timely payments, and can allow you to do things you would not ordinarily have an opportunity to do.  Conduct your research into your options and determine of a 2nd mortgage is the best way to realize your goals.

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