Second Mortgage Home Loan

The cost of home ownership is very high; most people can only purchase a home by obtaining a mortgage. Sometimes a second mortgage is also taken out by the homeowner. A second mortgage home loan is just what it sounds like; it is another secured lien against the property. In the legal arena, a second mortgage is subordinate to the first mortgage on the same property.

Second mortgages present a higher risk to lenders because if there is a problem of default, the second mortgage is only repaid after the first mortgage is paid in full. If a house is sold under a short sale, there may not be enough money received to put anything onto the second mortgage or fully repay the first. That is why the 2nd home mortgage rates are higher than those for a first mortgage. In general, interest rates for a second home mortgage loan are currently between 5.5% and 8.5%.

Real estate can have multiple loans placed against it using the property as collateral. Lenders make second, third or even fourth mortgages against the value of a property. These multiple loans are far riskier for the lenders; subsequent mortgages come with higher interest rates to help offset those risks.

When mortgage loans are registered with the local county or city clerk’s office, they are prioritized as to their position. The first loan is called a first position trust deed or first mortgage. The second would be referred to as the second mortgage, and so on. If the homeowner defaults on paying their mortgages, any money later collected when the property is eventually sold will go first to the first mortgage. Next to be paid would be the second recorded lien, then the third, et cetera.

Second mortgages are commonly referred to as home equity loans. The term of a second mortgage can be as much as 30 years, but many are much shorter. Terms are similar, and there may be an appraisal cost, application cost, points, closing costs and other fees associated with obtaining a second mortgage home loan.

There are many reasons a homeowner would like a second mortgage on their property. One major reason is to be able to perform home improvements or to add on an addition to the property that will increase its value. A second mortgage can also be used to purchase another property, such as a vacation home or to consolidate debts.

Second mortgages require a down payment, which can be financed as cash back in the loan. Rates are fixed or adjustable. There are some tax advantages to second mortgages, and some restrictions. If a homeowner rents out a second home, it may come under different regulations by the IRS.

To obtain a second mortgage home loan, homeowners must present similar information to that required for the first loan. Lenders want to see equity in the first property, low debt ratio, a high credit score and consistent employment history. Second mortgages are offered by many lenders, including credit unions, banks and mortgage companies. It is advisable to shop around for the best deal.