A second mortgage is a way for the home buyer to consolidate debts and to pull extra cash from the equity in their home. The homeowner has the right to place many loans on their property such as a second, third and fourth trust deed. Each loan placed is subordinate to the loan in front of them. So if the property goes into foreclosure, the first mortgage has the right to be paid before the second or subsequent loans on the property.
Many times when the property goes to a foreclosure auction, the second and third mortgage holders will be present at the auction. Anyone wanting to bid on a property at an auction, must satisfy all liens against the property, if the lien holders are present and demanding their rights.
Benefits of a Second Mortgage
The home owner has many options when he owns a property in certain states. It is important that the homeowner check with their individual states to see who allows such mortgages. Most home owners will place an additional lien on the property for many reasons to include:
- Consolidation of debts
- College Education
The rates on a second mortgage are cheaper than a credit card advance and thus more advantageous for the borrower. If there is equity in the property 10% or more, many banks will offer a second loan on the property that is subordinate to the first mortgage. This type of loan is an advantage for the homeowner who needs a large amount of money that is not available on their credit cards.
Disadvantages of a Second Mortgage
The major disadvantage of this type of loan is that the home owner places the property in danger with a large second trust deed. Should the interest rates increase greatly above what the borrower can pay, they may lose their home. The single largest reasons homes go into foreclosure are second mortgages. It is a loan that should not be entered into quickly without researching all the complications involved with this loan.
A second mortgage is usually a higher interest rate than the first mortgage, as the second trust deed holder is in an unfavorable position if the borrower defaults on the mortgage.
Mortgage fees tend to be much higher on a second or third mortgage and sometimes a prepayment penalty is attached. A prepayment penalty is an amount of money that is charged in case the borrower refinances or pays the loan the in full before the period stipulated has been completed.
How to Get a Quote on the Property:
There are many websites that offer help in negotiating a second trust deed. They offer links to many banks and financial corporations with the points and rates posted. Quotes are offered once the information is supplied on the property in question. Always be careful about giving out information to a website that is not a well known site.
Getting a second mortgage loan is not difficult if there is equity in the property and the borrower has good credit. If the borrower has poor credit the likelihood of getting a mortgage is doubtful. In many cases the borrower should look at his credit report before applying for the loan so they can correct any delinquencies posted on the credit report.