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July 13, 2005
Second Mortgage
A second mortgage is when someone pledges their house as collateral when it is already pledged in a first mortgage agreement. The rights of the second mortgage provider are secondary to the first mortgage provider. As the second mortgage provider does not have the same access to the collateral that the first mortgage provider has, they are taking on a greater amount of risk which creates higher rates on a second mortgage than on a first one. The reason that someone would take on a second mortgage is to raise additional finances for other expenses, often a large one time cost such as a child’s tuition. As well, to obtain a second mortgage, you must have a good credit rating and a solid history on your first mortgage. Otherwise, the provider of the second mortgage would not be willing to accept the risk of you as a client.
Traditionally, lenders have kept tight restrictions when offering a second mortgage. However, taking out a second mortgage is becoming much more common and the options available to home owners are much better. Some lenders will even allow you to turn your second mortgage into a line of credit. Taking out a second mortgage is a great way to raise a substantial amount of money fairly quickly. But you must be sure to budget for the additional payments as it is a significant ongoing expense.
Posted by ben at July 13, 2005 10:50 AM