What are Second Mortgages
Nowadays expenditure has risen but money in the pockets is still limited and people are heading towards mortgaging their properties for loans. In real estate we could mortgage our property for more than one loan. This second loan against the same property is known as second mortgage which is a kind of subordinate to the first loan. People could get second mortgage from almost any lender as it is nowadays not at all difficult to find a bank which provides attractive loan services. Second mortgage is somehow junior to the first mortgage.
There are many reasons for mortgaging your property for the second time. It has a few advantages. If in case you require greater amount of money then instead of refinancing your first loan for a greater amount you could take a second loan from a lender which is providing you with lower rate of interest and better services. This second mortgage could be used for various purposes such as education, transportation, home improvement or in case of medical emergencies.
Second mortgage is an easy option when a large amount of money is required and borrowing money from other credits is difficult. Even lenders who provide loans feel safer to provide loan against home as it is the most valuable property a person has but rate of interest on the second mortgage is higher than on the first mortgage as second mortgage is a subordinate to the first loan. In case of default, first loan will be paid first and then the second loan. This reason makes it a bit risky for lenders to provide loans.
Before mortgaging your home for the second time you must take care of a few things. Don’t just hurry up. Always contact more than one bank which provides second mortgage and compare their rates and services. There might be times when you fail to pay the Installment so you should avoid mortgages from lenders with default penalties which could dramatically increase the rate of interest on your loan. Some lenders attract you with their low installment but beware of the balloon payments which promise you with easy to afford payments in the beginning but a hefty payment at the end. You should always read the documents carefully before signing up for loans otherwise you could face a lot of problems afterwards.
The biggest disadvantage of second mortgage is that you are mortgaging the most valuable part of your life and in case you fail to payback the loans, results could prove to be catastrophic and second mortgages also come with a greater rate of interest. It is up to the person to decide whether he should go for second mortgage or not as if it has some advantages it does have a few disadvantages as well.