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A
second mortgage typically refers to a secured loan (or mortgage)
that is subordinate
to another loan
against the same
property.
In real estate, a
property can have
multiple loans or
liens against it.
The loan which is
registered
with county or city
registry first is
called the
first mortgage
or
first position trust
deed. The
lien registered
second is called the
second mortgage. A
property can have a
third or even fourth
mortgage, but those
are rarer.
Second mortgages are
called subordinate
because, if the loan
goes into default,
the first mortgage
gets paid off first
before the second
mortgage. Thus,
second mortgages are
riskier for lenders
and generally come
with a higher
interest rate than
first mortgages.
In most cases, a
second mortgage
takes the form of a
home equity loan and
the two are
synonymous, from a
financial
standpoint. The
difference in
terminology is that
a mortgage
traditionally refers
to the legal lien
instrument, rather
than the debt
itself.
The term length of a
second mortgage varies. Terms can last up to 35 years on second
mortgages; however repayment may be required in as little as one
year depending on the loan structure.
A second mortgage
can occasionally be
the catalyst to
foreclosure when a
homeowner defaults
on their loan. The
second lien holder
then purchases the
primary mortgage
(which may still be
in good standing)
and then forecloses
which leaves the
homeowner losing
their home to the
2nd mortgage lender.
Generally, when
considering the
application for a
second mortgage,
lenders will look
for the following:
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