Second mortgage
From Wikinfo
- For criticism see Criticism of Second_mortgage
A second mortgage typically refers to a secured loan (or mortgage) that is subordinate to another loan against the same property.
In real estate, a property can have multiple loans or liens against it. The loan which is registered with county or city registry first is called the first mortgage or first position trust deed. The lien registered second is called the second mortgage. A property can have a third or even fourth mortgage, but those are rarer.
Second mortgages are called subordinate because, if the loan goes into default, the first mortgage gets paid off first before the second mortgage. Thus, second mortgages are riskier for lenders and generally come with a higher interest rate than first mortgages.
In most cases, a second mortgage takes the form of a home equity loan and the two are synonymous, from a financial standpoint. The difference in terminology is that a mortgage traditionally refers to the legal lien instrument, rather than the debt itself.
The term length of a second mortgage varies. Terms can last up to 20 years on second mortgages; however repayment may be required in as little as one year depending on the loan structure.
A second mortgage can occasionally be the catalyst to foreclosure when a homeowner defaults on their loan. The second lien holder then purchases the primary mortgage (which may still be in good standing) and then forecloses which leaves the homeowner losing their home to the 2nd mortgage lender. As compared to the holder of the first mortgage the holder of the second mortgage is at a financial disadvantage. The holder of the first has no obligation to the holder of the second mortgage other than notification and acceptance of payment while the holder of the second must completely pay off the first mortgage, which may be onerous, or even impossible.
Generally, when considering the application for a second mortgage, lenders will look for the following:
- Significant equity in the first mortgage.
- Low debt-to-income ratio.
- High credit score
- Solid employment history
See also
External links and further reading
- "Home Equity Frenzy Was a Bank Ad Come True" article by Louise Story in The New York Times August 14, 2008
- Mortgage Comparison- Calculator from the Federal Reserve
- Second Mortgage Interest Deductions- IRS Fact Sheet
- Should you go for a Second Mortgage loan?
| This page uses content from Wikipedia. The original article was at Second mortgage. The list of authors can be seen in the page history. The text of this Wikinfo article is available under the GNU Free Documentation License and the Creative Commons Attribution-Share Alike 3.0 license. |
