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August 31, 2005
2nd Mortgage
When someone pledges their house as collateral again after they have done so for a mortgage, it is known as a 2nd mortgage. The provider of the 2nd mortgage has rights that are secondary to those of the provider of the first mortgage. Because the provider of the 2nd mortgage does not have as much access to the collateral, the risk they are taking is higher. Thus, the interest rates on a 2nd mortgage are higher than on a first one to compensate for this risk. There are numerous reasons that someone would take out a 2nd mortgage. Generally, a 2nd mortgage is used to raise a large amount of additional funds for a one time expenditure like a new car or a child’s tuition. Additionally, in order to secure a 2nd mortgage, you must have a good credit history, particularly with your first mortgage. If this is not the case, you will have great difficulties finding a 2nd mortgage provider that is willing to take on the risk of having you as a client.
In the past, it was common to have very tight restrictions on a 2nd mortgage. However, it has become much more common in the past few years to take out a 2nd mortgage and the options available to home owners is now much better. Some providers of a 2nd mortgage will even allow you to use it as a line of credit. A 2nd mortgage is a great way for people to quickly raise a substantial sum of money. However, before you do so, you must be sure that you have appropriately budgeted for the additional payments of your 2nd mortgage.
Posted by ben at August 31, 2005 2:20 PM