2ndMortgage (Second Mortgage)
When you buy a home, you will
get a 1st mortgage,
but often times you might hear people talking about a 2nd mortgage and you may wonder what that is. A
second mortgage is an extra mortgage that some people have to (or want to) get on their homes. A
2nd mortgage is often
referred to as a home equity loan because it is a loan that is taken out on the homes equity. If your home is
worth more now than it was when you got your 1st mortgage, the difference is the equity and
this is what your second mortgage amount would be. Sometimes people will get a home equity loan so that they can
do a remodel or some home repairs.
There are a couple different ways you can take
out a 2nd mortgage,
including taking the entire amount out at once and paying it back with a fixed interest rate, or by having it as
a home equity line of credit. Getting a home equity line of credit is just like any other line of credit you may
have, meaning that you use it and then pay it back as you go along. The benefit to this is that if you aren’t
using the money, it isn’t accruing interest.
Sometimes when doing a mortgage refinance, they
will only let you have part of the equity, rather than all of it. Some loans say that you cannot refinance for
more than 90% of the homes value, which you can find out during the mortgage refinancing process when your home
is assessed for value and equity. When you get the second mortgage, you will typically have two house payments
every month unless you consolidate them both into one loan. The rule of thumb when you have two mortgage
payments is to pay the 1st mortgage before the 2nd mortgage so that you do not run the risk of
losing your house.
A 2nd mortgage will typically have a higher
interest rate than a 1st mortgage, because the lender is taking a higher risk than the first. If you need to get
a bad credit mortgage, a 2nd mortgage probably will not be the best option for you because the rates might be even
higher than normal. You might consider improving your credit score first and then trying to get a home equity
loan and this would probably save you in the future.