Second Home Mortgage Information
Many people cannot imagine getting a second mortgage immediately after they have gotten their first home loan. Applying for a mortgage can be a long and difficult process, and when it is completed the homeowner is still stuck with monthly loan payments. However, as time goes on a second mortgage can become more of a possibility, and homeowners are generally more willing to consider it for a number of reasons.
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Second Mortgage Definition
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A second mortgage is another loan taken out on a property. The property has intrinsic value or equity, and this second loan can be taken out on that equity, just like the first mortgage. Typically, second mortgages are for similar amounts as the first mortgage, but they take a back seat when it comes to priority. If the first mortgage is defaulted, then the lender can use the value of the property to pay back the house. If the second mortgage is defaulted, the second lender cannot use this value.
Eligibility
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A homeowner cannot simply go out and receive a second mortgage immediately after their first. Lenders are generally less willing to give out second mortgages. Homeowners must show a proven history of making their monthly payments for their first mortgage to receive a second loan. The application process is also similar, and the lender will examine assets, bank accounts, and other financial information to decide if the loan is suitable.
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Rates
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Interest rates for second mortgages are almost always higher than first mortgages. Sometimes this reflects the current market of interest rates; if the rates are higher overall, the second mortgage rate will be higher, too. But specifically, lenders face much more risk in granting a second mortgage, and they want to be sure to turn a profit on the loan, so they raise the interest higher than they would for a primary mortgage.
Reasons
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People get second mortgages for many reasons, but the two primary reasons are large projects and consolidation. If the homeowner wants to add a sizable addition to the house or to landscaping, they may take out a second mortgage. Lenders prefer this option sometimes, because it adds to the value of the home. Borrowers may also take out loans to consolidate other forms of debt, paying off credit cards and car loans with a single second mortgage so they have only two mortgage payments to make.
Refinancing
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Refinancing is the act of replacing the first mortgage with a brand new loan completely. Sometimes people refinance, and sometimes they get a second mortgage and use it to pay off their first mortgage. Refinancing has many fees attached to it and homeowners may not be eligible. Rates also differ for second mortgages and refinances, and comparisons are needed to choose the most cost effective.
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References
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