What is a Second Mortgage?

 

 

We have heard about getting mortgages and how they help us buy homes so we can live in them for long periods of time and do what you want with it. However, you can have more than one mortgage on your home.

 

It may sound crazy to have a second mortgage on your home since one mortgage can seem stressful and impactful on your finances. However, typically, when someone goes for a second mortgage, it is not on the same property or they use it for other things, not necessarily on the home.

 

A second mortgage is a subordinate mortgage that is made for someone while they still have their original mortgage. If there is a default on the first mortgage, the original mortgage would get all the money from liquidating the property and would continue to get this until the all the property is paid off. The second mortgage cannot receive any proceeds from the property until the original mortgage is paid off in full; the mortgage interest rate for the second mortgage is often higher than the first mortgage and the amount of money that is borrowed from the lender is lower than the original mortgage.

 

The borrowers obtain a mortgage to purchase a home, which is the original mortgage. However, many homeowners will use a second mortgage to obtain some cash for other large expenditures. When parents have children who are going off to college, they can obtain a second loan so they have the money to pay for the child's college education. Another reason for the second mortgage could be to pay for a large expenditure such as a home remodeling job, like a home addition. It can be rather expensive to remodel a home or add on and sometimes those things have to be done faster than it will take to save the money. Perhaps you have other large sources of outstanding debt, you canrefinance to obtain money to pay off and consolidate that debt, such as credit cards since those have a lot higher of interest and the consequences act quickly.

 

If you are unfamiliar with the title second mortgage but are familiar with the concept, you may know this mortgage deal by the name "junior mortgage". The term also refers to a second mortgage, however, a junior mortgage can also refer to a third or fourth mortgage. Many people who use a junior mortgage do so to include a piggy-back loan and also home equity loans.