A second mortgage normally refers to a secured loan that is subordinate to another loan against the same property. A property can have multiple loans or against it. The loan which is registered with county or city registry first is called the first mortgage. The loan registered second is called the second mortgage.
Second mortgage repayment terms can vary considerably, so it is important that you look around for the one that is best for you. For the most part they range in length from 2 to 20 years, with the majority of second mortgage loans being 5 to 10 years. The majority of second mortgages are paid back in equal monthly payments with a portion of the payment going to interest and a portion to the principal balance. However, some are different such as those known as interest only mortgages. In that case your monthly payment will go only towards interest and the entire principal will be due at the end of the second mortgage term.
Second mortgages are called subordinate because, if the loan goes into default, the first mortgage gets paid off first before the second mortgage. Thus, second mortgages are riskier for lenders and generally come with a higher interest rate than first mortgages. It is often considered risky for the borrower too because it can lead to foreclosure when a homeowner defaults on his/her loan. The second mortgage lender then purchases the primary mortgage and then forecloses which leaves the homeowner losing their home to the 2nd mortgage lender.
Generally, when considering the application for a second mortgage, lenders will look for pointers such as significant equity in the first mortgage, low debt-to-income ratio, high credit score and solid employment history and so on. The main issue with this is that the lender expects you to pay the money back on time. Sometimes getting a second mortgage can be advantageous. It is important to know exactly what you are getting yourself into before moving forward with this process.
There are many good second property mortgage offers around, provided you know how to choose a suitable option and provider. If you are unsure you can always seek the help of a specialist broker who can advise to get the best deal possible. While you will have to pay for the services of the broker, you could in the long run save yourself a lot of money in case you make a huge mistake by doing it alone.
There are also many mortgage companies online that can help you find direct mortgage lenders and home loan brokers that will best suit your needs. This is a quick way to find a good mortgage loan and compare rates and offers from multiple lenders. When lenders compete for your business, it works to your advantage.
In order to get the best deal on your mortgage loan, you will need to understand certain things such as points, interest rates and closing costs. A point is amount that a borrower will pay in order to reduce the interest rate on their mortgage. One point is generally equal to 1% of the loan amount. Some lenders will advertise very low interest rates, and only when you read the fine print will you learn that you will have to pay points in order to get them.
With a mortgage loan, all interest is front-loaded, which means that for the first few years, every payment that you will make will go mostly toward the interest. Closing costs are predetermined fees charged for closing the account. These are determined by the type of loan you get, and the area where you live. Your lender is required by law to inform you of any closing costs beforehand.