18 Feb

1st & 2nd Mortgages

General

Posted by: Adam Dunn

One of the benefits of home ownership is that it allows you to use your home as collateral when you need to borrow money, by taking out a second mortgage.

A second mortgage is a loan against your property that is in addition to your existing 1st mortgage. This loan is secured by real property with a mortgage note used as an instrument for repayment. The 2nd loan is also known as a subordinate lien and home equity loan. The second mortgage is held and recorded in 2nd position on the property deed.

Second mortgages offer several advantages over other types of borrowing. Interest rates are fairly low, particularly when compared to credit cards or other unsecured loans, and because they’re a type of mortgage, the interest is tax-deductable for most borrowers.

If a borrower defaults on a 2nd loan the first mortgage lender is paid prior to the second mortgage lender when the proceeds are dispersed from foreclosure. In the past second mortgage loans have had a higher default ratio. Considering the risk factor added to these subordinate home liens, most mortgage lenders will charge a higher percentage of points (also called origination fees).