Among the various risky forms of lending, second mortgage occupies a prominent position for most lenders. In simple terms, this refers to a second loan that is taken against the same property. Let us analyze the working of this in a little more detail.
Multiple loans can be taken against one property. However, if there is a necessity for selling the property to realize the amount of the loan, then the first mortgage will get the first importance. The second loan will get paid off only after the first loan is paid. Therefore, these are risky for the lender. There are cases of third and fourth mortgage too but they are rare. Second loans are normally given only against real estate properties. The rank of the financing, i.e. whether it is first, second, etc. is decided based on the date on which it is registered with the county registrar. The first registration is called as the first position trust deed.
Normally, in financial jargon terms, a second mortgage is in the form of a home equity loan. The difference from mortgage lies in the point that the latter is a legal lien instrument. The term of this second loan varies widely. It may be anywhere between one to twenty years depending on the structure of the loan. In many situations, the home owner may lose his house to default on second loan. He may still be in good standing on the first loan but might have failed to make timely payments on the second one. The second lender may purchase the first mortgage too, sell the house and realize the loan.
Any person who seeks a second mortgage will have to provide the following details. Only then he will be able to avail the loan.
- High credit score.
- A good amount of equity in the first mortgage.
- History of employments held and holding.
- Low debt to income ratio.
Never rush into a second mortgage without proper planning. Read documents carefully, including the fine print, before you sign the dotted lines. |
