What You Should Know about Second Mortgages

If you are in the market for a loan in a hurry and want it to be a second mortgage as your top choice then you should know some very important information. These characteristics associated with obtaining a second mortgage will make your decision and the whole process a little easier.

First of all a second mortgage is exactly what it is. It is a mortgage secured by the equity in your home and is subordinate to the primary loan, which is normally larger than the second mortgage. Typically, people select a second mortgage or line of credit on their home as the amount is smaller and it not longer than 15 or 20 years. An advantage utilized by many people who choose a second mortgage loan is to consolidate and pay off higher interest debts such as credit cards, auto loans and even education loans.

A disadvantage is that the second mortgage is a lien secured against your home. So if you miss a mortgage payment or don’t pay it at all for three consecutive months you may go into foreclosure and lose your home. Also, the interest rate on a second mortgage is higher than the rate on a first mortgage.

As is the case with a first mortgage, the second mortgage carries closing cost fees such as recording, settlement, origination, appraisal, notary and other miscellaneous items. Sometimes all or some of these costs are waived or deducted from the loan proceeds. However, overall the costs are significantly lower than a senior mortgage. Your first mortgage usually has a lower rate so most people don’t want to touch it, especially if they intend to payback the second mortgage before its term.

Due to the economy, certain types of second mortgages have been taken off the market such as stated income and no doc second mortgages from approximately 90% or more of the wholesale lenders and banks. Although, if one searches hard enough, they are still being offered at much higher interest rates than one year ago with lower loan to value ratios in the 60 to 70% range. If you need quick money and have more than 50% equity, a hard money lender can usually offer a second mortgage to you even with low credit scores in 10 days or less. This holds true for home equity lines of credit as well. Moreover, some banks have reduced or wiped out borrower’s lines of credit due to their audits of property values. So, if you borrow the money or have access to an equity line, you better put it to good use or it could be called back.

Frank Collins is an avid investor in real estate and contributor to a Jumbo Mortgage Loan site and a Local FHA Home Mortgage Loan site in your area.

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