It is inherent to have multiple mortgages on a home. The first mortgage is the traditional mortgage. The second mortgage is subordinate. This means that if there is default in payment, the traditional mortgage is to be satisfied first and anything remains would go towards paying the secondary mortgage(s). This is absolutely why second mortgages carry a higher rate of interest. Secondly, similar to first mortgages, second mortgages also have additional costs like closing costs and points, which makes them costlier.
There are in fact any types of second mortgages. One of the easiest to procure allows the homeowner to borrow an whole that would be covered by the equity he has in the house. If the equity totals to ,000, with the first mortgage at ,000, the homeowner can borrow ,000 on the second mortgage. The whole is covered along with the dues on the first mortgage, by the equity in the house. Other type is the line-of-credit second mortgage, where the homeowner does not avail of cash immediately, but gets a line of credit secured against the home instead, allowing him to use it as and when required.
At times, a second mortgage is taken out simultaneously with the first mortgage, to help the mortgagee to qualify for the buy of the new home. For example, if the first mortgage requires a thirty percent down cost and the loan applicant has only twenty percent as his own money, he can go in for a second mortgage for the remaining ten percent.
Then there is also a second mortgage in which you can get a loan up to 125 percent of the value of your home. This type of second mortgage is more difficult to procure and requires a very high credit rating. It has a major disadvantage in the interest not being subject to the advantage of tax deductibility, as mortgage interest is tax deductible only for mortgages secured fully by real estate.
Second Mortgage Loan Basics - What They Are - How To Get approved
