By Rachelle Vasser
If you have debt you need to consolidate or you want to reduce the initial investment required to finance your first mortgage, you should consider second mortgages. But second mortgages often come with consequences, so do not be frivolous with them. Learn what they are and how they work before you seek one.
What Is A Second Mortgage?
A second mortgage is literally what it its label implies; it is an additional loan you take to supplement the first loan. This can be used in any kind of property, be it an auto loan, financing for a boat or a home mortgage. Generally I deal with second loans having to do with homes, so that will be the focus of this article.
Often, people don't even realize they can obtain a 2nd mortgage. In fact, it isn't uncommon in real estate for a property to have multiple loans handling its expense.
It Isn't An Out From Responsibility
One misnomer, however, is that such loan can be obtained to save your butt on your first loan. This just is not the case. If you are struggling to keep up with your first mortgage, do not expect your lender to give you a second mortgage.
Banks and lenders are in the business of making money. Especially in the current economic climate and in the aftermath of the sub-prime lending crisis, lenders are not interested in giving loans to people who can't pay off their current debt.
However, if you can show that you have been responsible with your first loan, obtaining that 2nd loan may be an excellent way to consolidate your debt or finance some nice upgrades to your property.
2nd Mortgages Carry High Interest Rates
One thing to keep in mind, however, is that these additional loans are considered to be subordinate to the primary loan. So if you should default on your home financing, any kind of foreclosure would go towards paying off the first mortgage before the 2nd mortgage.
This makes secondary mortgages more risky for lenders. Thus you can expect to pay a significantly higher interest rate for second loans even if you have good credit. Because of that higher interest rate, it also makes them a little more risky for you because you will have a higher monthly payment earning you less equity per dollar paid.
So while I advise you to not ignore second mortgages, be sure you understand what you're getting into before you commit to the additional investment and higher interest rate.
Learn how second mortgages help you obtain 0 down home loans at my comprehensive new website where I dispel the myth of the no money down home mortgage.
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Understanding Second Mortgages
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