A second mortgage is an additional loan that can be acquired
after the first mortgage. The same assets that were used to secure the first
mortgage, must be used to secure the second. Generally, the interest rate on a
second mortgage is higher than that of a first mortgage. Equity determines the
quantity and type of second mortgage an individual qualifies for.
Start with the lender that currently holds your second
mortgage. Find out if your lender is willing to refinance the second mortgage
at a lower interest rate and what fees will be involved. Ask if closing costs
are required; second mortgages are different from primary mortgages because
there are not always closing costs involved.
There are many reasons why you should look into refinancing
your second mortgage, including decreasing your monthly payments, lowering your
interest rate and reducing or eliminating Private Mortgage Insurance (PMI). It
can also help you change the term of your loan if your financial situation has
changed, as well as help you get cash back at closing. In some cases, refinancing
can also allow you to consolidate your first and second mortgage into a single
loan.
Interest rates on second mortgages are typically higher than
on a primary mortgage. That’s primarily because they’re a bigger risk for the
lender – if the borrower defaults, the primary lender gets completely paid off
with the proceeds from foreclosure before the secondary lender gets a dime.
Before taking a second mortgage on your home, you should
weigh carefully the costs against the benefits. Shop for the credit terms that
best meet your borrowing needs without posing undue financial risk. Remember
failure to repay could mean the loss of your home.
If you are eligible to refinance through HARP, you’ll take
out a new mortgage and use those funds to pay off your existing first mortgage
and usually the closing costs for the new loan. It’s important to understand
that your “first” and “second” mortgages are separate obligations, and only
first mortgages are eligible for HARP refinancing. But, because lower monthly
payments on your first mortgage may improve your likelihood to repay your
second mortgage, your second mortgage lender may be willing to cooperate.
If a home owner is refinancing with a Home Affordable Refinance and requiring a subordination, assuming their appraisal is waived, if
the second lien holder denies the subordination, they have probably only lost
their request for subordination fee (and time). It’s also possible that the
second lien holder may require an appraisal to process the subordination even
though the first mortgage is not requiring one.
A second mortgage is an efficient way for homeowners to
utilize the value of their homes to gain financial stability. The capital
generated by a second mortgage can work to increase the value of the home
through improvements, pay for medical bills, or almost any other critical
financial outlay. Just like a primary mortgage homeowners who wish to save
money or change their monthly payment.
When you refinance the first mortgage, you pay off the old
first mortgage, which results in the second mortgage automatically becoming a
first mortgage. To avoid this, the second mortgage lender must agree in writing
to subordinate his claim to a new first mortgage. Some second mortgage lenders
will agree to do this, since it is no skin off their nose, but others refuse to
do it and some will take the position that the only way they will cooperate is
if they refinance the first mortgage.
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