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What is a Second Mortgage?

Second mortgages are short-term loans against a property's equity.
Second mortgages often have higher interest rates than first mortgages.
Homeowners can obtain a second mortgage from their current lender or any other lender.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 30 July 2014
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A second mortgage is an additional mortgage on property that is extended to the owner when the property is already carrying a first mortgage. Second mortgages are often extended by the same lender who supplied the first mortgage. However, a second mortgage can be obtained from a different lender. In the event that the borrower fails to meet the payment schedule for both mortgages, the lender who holds the primary mortgage will receive payment from the foreclosure and sale of the property first. The holder of the second mortgage can then claim any remaining proceeds.

When a homeowner chooses to engage a second mortgage, the lender will typically consider the current outstanding amount of the first mortgage, the current market value of the property, and the credit rating of the applicant. After evaluating these factors, the lender will inform the borrower of the amount of funds that can be secured with a second mortgage. This figure may be more or less than the borrower hopes to receive from the transaction. Once the lender has informed the homeowner of the loan amount involved, and the rate of interest that will apply, he or she can determine whether to proceed with the application.

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In most cases, a second mortgage will carry a higher rate of interest than a first mortgage. This is due to the fact that the lender is incurring a higher degree of risk, even when the financial condition of the homeowner is very stable. The increased risk to the lender does not indicate a lack of credit worthiness on the part of the applicant. However, the interest rate does recognize that in the event of default, the holder of the second mortgage would be unable to claim any funds from the sale of the property until the first mortgage was settled.

Along with the higher interest rate, a second mortgage is usually written for a shorter term than first mortgages. Often, this second loan on the property is taken out to make repairs or enhancements to the property, and is considerably less than the amount of the first mortgage. Under these circumstances, the homeowner is expected to repay the amount of the mortgage plus applicable interest within a shorter period of time.

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Bhutan
Post 4

Oasis11-If you are looking for a second home mortgage or looking to refinance a second mortgage you should go to Bankrate.

They really offer a lot of information regarding the current second mortgage interest rates and give you an opportunity to ask a financial expert a question regarding your current circumstances.

They also offer second mortgage calculators to give you an idea of what your payments would look like on different interest rates.

Once you have had time to look at the site, you might want to speak with a mortgage broker that can offer you even more options. Then you will be in the best position to make a decision and pick the best second mortgage for yourself. This is especially important if you are seeking a second mortgage with bad credit.

Here the mortgage broker might be able to offer you different second mortgage financing options for your second mortgage home loan.

oasis11
Post 3

Mutsy-If you decide on a HELOC, you only begin paying it back when you actually start withdrawing from it.

A HELOC will have a variable rate but right now the interest rates are so low that it might not matter. The bank however, will place a lien on your home until you pay, and unlike a regular mortgage, a second home mortgage is a recourse loan. That means that if you default and lose the property due to a foreclosure, you are still liable for the balance of the loan after it is sold.

Sometimes your own bank or a credit union will offer the best second mortgage options.

mutsy
Post 2

Anon116144-If you want to take out the equity in a home you have to apply for a HELOC which is a home equity line of credit or a home equity loan.

In order to qualify, the banks will require an appraisal of the property as well as seek information regarding your home owner’s insurance and any additional requirements that your property might need like flood, fire, or earthquake insurance.

If your credit is above board, the bank will determine the maximum amount that they will let you borrow. Usually the terms require pay back within 10 to 15 years, but most banks will let you extend the terms after the initial term lapses.

anon116144
Post 1

I have a second home on which i owe no mortgage. i would like to take out 85 percent of the appraised value. could someone tell me who could help me out with this request?

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