Facts about Second Mortgages
There may come a time in your life when you need money, and you may consider a second mortgage. When you purchase a home, the first mortgage you take on the home is the primary lien until you pay off this mortgage. However, once you build up a certain amount of equity in your home by making mortgage payments, you will be able to get a second mortgage on the home. a second mortgage is simply when you borrow more money on the equity in your home as a second loan rather than refinancing. Many people who are considering taking a second mortgage on their home have to ask themselves which is better: a second mortgage or refinancing a first mortgage? There is some important information about second mortgages and first mortgage refinancing you should know before you decide which option is the best for you.
Important Second Mortgage Facts
- A second mortgage takes backseat to your first mortgage; the lender who gave you your original mortgage on the home has precedence over the new lender of the second mortgage.
- Getting a second mortgage is essentially the same process as getting a first mortgage. You must complete all of the financial paperwork, personal information, get a home appraisal, and give the new lender all of the necessary information for them to determine if the loan can be financed or not.
- There are fees involved with obtaining a second mortgage. You are getting an entirely new loan and will have to pay loan origination fees, appraisal fees, and closing costs, with a first mortgage.
- A second mortgage may be more difficult to obtain. When you refinance a first mortgage the lender knows that they have the first lien on the property in case of loan default or foreclosure. With a second mortgage the lender is aware that if the first mortgage forecloses on the property they will be paid what they are owed first and the remainder will go to the subsequent mortgage holders.
- Having a second mortgage means that you will have two sets of payments every month instead of just one. You will have to make your first mortgage payment as usual, and make a second mortgage payment every month to avoid defaulting on your mortgages.
Benefits of a Second Mortgage There are many benefits to taking out a second mortgage as opposed to refinancing. The most important reason is if you have a very low first mortgage rate, but now rates are much higher. However, every situation is different and whether a second mortgage or a refinance is best depends on your own financial situation. Learn About the Benefits of a Second Mortgage There are many differences between second mortgages and refinancing. Depending on your own personal financial situation, one option may be more beneficial than the other. It is important to understand how a second mortgage differs from a refinance. Some of the facts you should know about refinancing include:
- When you refinance the mortgage on your home you are obtaining an entirely new mortgage on your home. This means that you will have to go through the entire process of getting a mortgage loan like you did when you originally purchased your home. You will have to supply the lender with your personal information, employment information, financial information, and more.
- There are many fees involved with refinancing your mortgage. You will have to pay all of the fees associated with obtaining a mortgage including a loan origination fee, title fees, points on the new loan, an appraisal fee, and more.
- Depending on current interest rates, you may get a less favorable rate when you refinance your home.
- You will have one mortgage payment to make every month. Depending on the interest rate and terms of your new mortgage loan this payment may be higher or lower than your previous mortgage payment.
If you feel a refinance would fit your needs best, you can learn more about refinancing
from Mortgage Loan Place. You should take the time to compare the pros and cons of each of these equity-tapping options and choose the one that suits your needs best. More information about second mortgages and refinancing first mortgages can be found at the Department of Housing and Urban Development.