The Pros and Cons of a Second Mortgage
Posted on May 30 2011 at 11:12:04 PM in Finance & Investment
The second mortgage is the loan taken for securing previous loan against the same property. It is also called as secured loan. There are many mortgage companies providing the second mortgage loans for securing the present property loan. You can select any one of the best mortgage companies to achieve your purpose.
In the real estate, the fixed property (typically a home) can have multiple loans or liens against it. The loan that is initially registered is called as the first mortgage loan or the first position trust deed. The loan taken for the second time on the same property is known as second mortgage. The still property can have multiple mortgages. It can have third or even fourth mortgage loan. The second mortgage is called as subordinate because if the loan gets default, the first mortgage is automatically paid before the second one. The second mortgages are riskier for the lenders. Hence, these mortgages come with higher interest rates.
The term period in the second mortgage loan varies from company to company. It may last up to 30 years on second mortgage. The repayment period of the second mortgage may be as little as one year dependant on the loan structure.
Pros and Cons of Second Mortgage:
Advantages of Second Mortgage
There are many advantages of second mortgage loans. With the second mortgage loans, you can have quick access to cash at reasonable interest rates. If you have good credit history, the lenders will offer you the second mortgages at pretty good interest rates. The second mortgage will counter balance your loan payment as the interest rate paid on mortgage is tax-deductible. If you compare the second mortgage loans with the money you borrow on credit cards or other standard consumer loans, you will know that the interest rates charged on such borrowing reaches double-digit figure. It may also include the service charges and hidden fees. When you consider second mortgages, it is quite inexpensive to close and the money can be used as you want.
When you get the second mortgage, up to $100,000 of interest can be deducted while it is not applicable for the personal loan or the credit card debt. When you compare personal loan and second mortgage in terms of taxes, mortgage is always listed on top.
Interest Rates – The second mortgage loan given to the borrower is secured by the still property of the consumer (borrower). If the borrower defaults the loan, bank can take away the property of the consumer. Hence, the lender offers the second mortgages at the lower interest rates. These rates are lower than that on unsecured debts.
Demerits of Second Mortgage
The major disadvantage of second mortgage is its strength. The second mortgage enables you to get as much loan as you want by securing your property. This has made the borrowers to tap more loan amounts than they required. It becomes difficult if the lenders decide to increase the mortgage rates.
The other major disadvantage of second mortgage is that the loan is secured by the borrower’s house. If he/she defaults the loan, the first loan will be automatically paid by the second mortgage, but if the borrower fails to pay back the second mortgage, he may lose his shelter. It is quite risky business to indulge in the second mortgage.
There are many advantages and disadvantages of second mortgage. You can select the best mortgage companies for getting the second mortgage and enjoy the benefits.