Second Mortgages

What is a Second Mortgage?

A type of subordinate mortgage made while an original mortgage is still in effect. In the event of default, the original mortgage would receive all proceeds from the liquidation of the property until it is all paid off. Since the second mortgage would receive repayments only when the first mortgage has been paid off, the interest rate charged for the second mortgage tends to be higher and the amount borrowed will be lower than for the first mortgage.

If you need money, a second mortgage may be the answer. Common reasons to obtain a second mortgage include:

• Home improvements
• Avoiding Private Mortgage Insurance (PMI)
• Debt Consolidation
• Purchasing additional homes
• Creating a home equity line of credit (HELOC)

 

Home Equity Line of Credit (HELOC)

A line of credit extended to a homeowner that uses the borrower's home as collateral. Once a maximum loan balance is established, the homeowner may draw on the line of credit at his or her discretion. Interest is charged on a predetermined variable rate, which is usually based on prevailing prime rates. Once there is a balance owing on the loan, the homeowner can choose the repayment schedule as long as minimum interest payments are made monthly. The term of a HELOC can last anywhere from less than five to more than 20 years, at the end of which all balances must be paid in full.

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Fixed-Rate Mortgages are a good choice for anyone who...

• Wants to take advantage of today's low interest rates.
• Plans on staying in the home for many years.
• Prefers the stability of a fixed monthly interest payment.

Adjustable-Rate Mortgages are a good choice for anyone who...

• Wants to save money on interest payments
• Wants lower monthly mortgage payments
• Wants to consolidate other debts
• Wants to reduce the term of their mortgage
• Wants to invest in home improvements