A second mortgage is an advance or loan taken against the equity of your house on which there already exists a primary mortgage. The first mortgage has more concern than the second mortgage on the property. If you are a defaulter you need to pay off the outstanding balance on your first loan before paying off the second mortgage. A second mortgage enables you to get a higher amount as the lenders prefer a loan against the home much safer than any on other asset.
Second Mortgage Situations
People have different needs and desires, but some similarities do exist when it comes to borrowing a second mortgage. These include:
Evading a prepayment penalty - borrowers use a second mortgage for avoiding a prepayment penalty pinned to the first mortgage. Lenders make money if a loan is on their records for a long time, but if the borrower refinances it before the time period is over, the lender is not able to do so. This is why the lenders add a prepayment penalty to a loan. Here second mortgage is of great use when you consider the closing costs of it. It enables you to overcome the prepayment penalty on your first mortgage without much trouble.
Low interest rate on your first mortgage - If you have a lower rate of interest on your first loan, taking to cash-out refinance will increase your monthly payments, whereas if you consider a second mortgage it will give you a shorter duration solution.
Lower fees - The fess associated with a second mortgage are nominal and, if your credit rating is strong, they can become non-existent.
Other purposes for second mortgage include:
* Home improvements
* Debt consolidation
* Buying additional property
* Creating a home equity line of credit
Getting a Second Mortgage
You shop for a second mortgage the same way you shopped for your primary mortgage. You need to approach the lender that can get the best deal for you. You can get quotes for the second loan by filling out a no-obligation short form and contrast to decide which loan suits you the best. The lender will evaluate your house and verify its present value before approving your loan.
Drawbacks of a Second Mortgage
1. If you are not able to pay back the second mortgage, you risk losing your home. If your needs are very urgent you should opt for a second mortgage because the inability to repay can be harrowing.
2. A second mortgage has a higher rate of interest associated with it as the payment for the primary mortgage has to be made first.
3. Another drawback of a second mortgage is that it is subject to higher fess.
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