3 Thoughts on what is a second mortgage?
  1. Reply
    February 6, 2014 at 8:04 am

    I assume you know what a first mortgage is. A second mortgage is exactly what it sound like. It is a type of loan that is based on the equity in your house. The interest rates for second mortgages are usually higher than those for first mortgages and the amortization period (Time to pay it back is usually shorter than a first mortgage.) As a general rule, you might consider refinancing the house with one mortgage before you look at adding a second. With a second mortgage you will have two payments to make each month. Hope that helps.

  2. Reply
    February 6, 2014 at 8:35 am

    In most cases, you are only allowed to mortgage 70-75% of the assessed market value of your home, on a “first” or main mortgage. However, there are companies who will lend you money based on the remaining 30-25% equity you have (or expect to have). Their interest rates are considerably higher, because their risk is greater than that of the first mortgage holder.

  3. Reply
    February 6, 2014 at 9:00 am

    It is a second home loan that is junior to your senior mortgage, often used to provide a cash influx to the borrower or “bridge” the cost and where the senior will go in the capital stack. For example, if the cost of your house is $ 100,000 and you can get a senior mortgage for 80% (which is fairly typical for home loans), you would have to come up with $ 20,000 to buy the house. (Of course for this example I’m excluding closing costs, taxes, etc.) Should you not have $ 20,000 available, you can take out a second mortgage to help bridge the gap. These are almost always at higher interest rates because the senior loan has a priority position on the land/house. Therefore if the payments could not be made, the senior loan could require a sale of the home to pay them back. If this sale did not cover the 2nd mortgage position, the bank holding that note is going to lose money. This increased risk demands higher rates.

    Also interesting to note that because it is still deemed a mortgage, it takes a priority position to all other debt besides the first mortgage and taxes. Hope this explains it.

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