Things you should know about Second Mortgage Loans
A second mortgage loan is when a person takes a loan on the same property on which he already has a mortgage loan. This is applicable in both residential and commercial properties which mean if you have mortgage loans on a residential or commercial property, and then you can further take mortgage loans on the same property provided you fulfill the criteria which are laid out by the lenders.
 |
| Second Mortgage Loans |
Working principle of a second mortgage
A second mortgage loan isn’t the same as the first mortgage loan and they differ in many aspects. For example, if you are already paying mortgage loans on a residential or commercial property, then you take a second mortgage loan it will imply that you are taking another mortgage loan with the same property as security.
But the difference comes in when it is time to repay. If you fail to repay the mortgage loans altogether and the property is on the verge of getting sold, then it will be the first mortgage loan which will be repaid first. Only after repaying the first mortgage loan, the second mortgage loan will come into the picture and the repayment will start. That is why the second mortgage loan falls into the high-risk category and hence, it is difficult to find a lender for a second mortgage loan.
Benefits of second mortgage loans
The second mortgage loans have many benefits but before looking into the benefits, you must understand that taking as second mortgage loan means you are increasing your debt. You should have a plan on how you will repay both mortgage loans so that you won’t have to face legal charges later.
But none the less, the second mortgage loan could act as a line of credit in many scenarios and hence could enrich the housing structure. For example, you may want to expand your structure, but the existing lenders are not ready to release additional amount for buying equipments. In this scenario, the second mortgage loans could be a viable option and they could provide the line of credit with which the expansion of the existing home could be completed.
There could also be other scenarios where second mortgage loans could come in handy. For example, as a parent, you can take a second mortgage loan on your property in order to provide finance for your son’s/daughter’s home loan. In this case, the second mortgage loans will add relief to your kids until they come to a point where they can start to repay their own mortgage again.
 |
| Second Mortgage Loans |
Difficulty in getting a second mortgage loan
The second mortgage loans are a high-risk category for the lender. It is due to the reason that, in case of any default, the first mortgage loan will be repaid first and the lender of the second mortgage loans will get whatever is left thereafter. Hence, it puts the lender of the second mortgage loan at very high risk and they could lose a significant amount of money if defaults occur.
Drawbacks
And this is where the drawback of the second mortgage loans comes in. In the traditional banking system, the second mortgage loans are a time-consuming process and it is very difficult to obtain one. Many bank staff is not familiar with second mortgage loans and there could be further complications due to lack of knowledge of the staff.
There is also another drawback that paying high interest fort second mortgage may not be viable for a lot of people. Thus, taking a second mortgage loan will actually do more harm than good. Hence you should choose carefully.
0 comments
Note: only a member of this blog may post a comment.