Factors to be Considered Before Second Mortgage

By: Lesley Lyon

A second mortgage refers to as mortgage which is subordinate to another loan against the same property. In real estate business, a single property can have multiple loans on it, the loan which is registered first with the lender is called first mortgage and the next registration is called Second Mortgage or subordinate mortgage. It is so called because the first mortgage will have preference and will be paid before the second one. So, the second mortgage has more risk compared to first and that is the reason the interest rates are high for second mortgage compared to the first mortgage. Due to the risk the bankers or lenders will not offer beyond second mortgage.

Factors considered at the time of second mortgage are credit score, income of the individual and the assets with him. Before applying for a second mortgage, the person must prepare a budget for the income and expenses in future. Mortgage industry is growing rapidly due to the increase in customers' needs for loan started increasing. So, a tough competition has been started between the lenders to propose new and exclusive loan options to the first buyers as well as refinancing customers. Because of this the customer will have a tough time to compare and choose the best lender from the options left. It is very much important to consider all the options before deciding on the second loan, by getting quotes from different lenders and comparing them.

Factors which help to make second mortgage success are:

Refer more than a bank one credit institution or lender before taking the second mortgage.

Try to avoid penalties by missing a payment or a late payment. These will in turn lead to increase in interest rates.

Don't pack into any of the voluntary insurance policies, because adequate coverage outside the mortgage will exist already.

Read the contract or the mortgage details fully before getting into it, because any balloon mortgages might be in the deal. The balloon mortgage is a specialized loan for a unique situation.

In earlier days, the banks and lenders had a ceiling amount to give as second mortgage and the restrictions were more, but nowadays, ample types of loans are available to fulfill the needs of the customers and it is very much easier to get a second mortgage. Second mortgage are used for variety of purposes like, financing home improvements, college fees, emergency expenses or accumulation of large amount of debt, credit card dues or other bills etc. The underwriting guidelines are easy for second mortgage. So it usually takes less time and effort compared to refinance a loan. Comparatively, the interest rates will be less in second mortgage than in refinancing in the long run.

Generally a loan amount borrowed through second mortgage depends upon the home equity. It is the difference between the current value of the home and the amount outstanding towards the first mortgage. Through second mortgage the individual will get a chance to get a large sum of money and he can also deduct the interest on the taxes up to a certain limit. The second mortgage loan does not have priority on the home in case if the customer defaults. Main disadvantage in second mortgage is the borrower is taking a risk on his home.

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