Legal Description of a Lien Second Mortgage
During times of economic struggle and homes foreclosing all around us, it is imperative to understand mortgages and how they can affect us financially. Second mortgages, sometimes referred to as home equity loans, are not uncommon but are sometimes seen as risky investments for the lender leading to high interest rates. If you're considering this second lien mortgage, be prepared with important information before you dive in.
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Basic Definition
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A second lien mortgage is a loan that enables you to borrow money against the equity of your home. Obviously, you have to already be a homeowner or in the process of buying a home to receive this type of mortgage. Often people apply for a second mortgage to make additions to a home, pay for a child's college tuition, buy a vehicle, pay for medical expenses or even pay part of the down payment for the home.
Wording
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Because a second mortgage is usually a home equity loan, these two terms are often used synonymously when referring to the financial aspect of the loan. However, when describing the legal lien aspect, the term mortgage is used as opposed to the loan which refers to the debt. A lien usually alludes to the security interest that the lender has over the property.
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Description
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This type of lending agreement a line of credit is based on home equity, usually a percentage of the total equity you have in your home. Although lending companies and sometimes states can differ on the available percentage, often the number is between 50 percent to 70 percent of the total equity. Because second liens are considered somewhat risky on the part of the lender, they tend to have higher interest rates than a first mortgage.
Legal Details
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In a legal sense, the second mortgage is subordinate to the first mortgage or lien on your property. Because it is registered with the county or city registry second, it takes a backseat to the first. The type of type of lending agreement for the second lien is not significant. When the loan is defaulted on, the first mortgage gets paid off first.
Foreclosure
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Unfortunately, second mortgages are sometimes the reason that homeowners go into foreclosure. Defaulting on the second loan can result in someone losing the home even if a homeowner has not missed any payments on the first or main mortgage and is currently in good standing with the first lender. Although the process is not simple or necessarily quick, the second lien holder may, this case, be able to purchase the first mortgage and foreclose on the home.
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