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2nd Mortgage InformationSecond mortgages are loans positioned after the 1st Mortgage on Title (in terms of Lien Position). These means that in the event of default or foreclosure the lender with the Second Mortgage will be compensated only after the lender on the First Mortgage is compensated. This makes the loan riskier in the eyes of Lenders. On account of this additional risk 2nd's normally have higher interest rates than do 1st Mortgages. Coupled with this is that Second Mortgages usually have lower loan amounts as well as having a higher Loan to Value and you begin to understand why, again, rates are higher for 2nd's than for 1st Mortgages.
With that said, the rates for Second Mortgage programs are still less than those of most credit cards and other revolving debt. Plus the payments are generally for terms of 15 or 30 years. Those two factors make debt consolidation a common reason for taking out a 2nd Mortgage because the payments are usually quite a bit lower than total payments for the debt would be with out a Second.
Those looking to buy a home with less than 20% to put Down on a property often use 2nd Mortgages to 'Piggyback' on a 1st Mortgage. This is usually based on the advice given by a Loan Officer because it helps the borrower avoid Mortgage Insurance (This would result if you had one loan with a Loan to Value above 80%). The only drawback to this is that it can sometimes result in slightly higher Closing Costs because there are two loans. However, these additional costs are quickly recovered by the monthly savings.
Second Mortgages are also taken by many people to finance home improvements or to pay for other expenses that would be too prohibitive if they were to be paid for upfront or on a shorter term. Many expenditures can become more affordable when spread out over 15 to 30 years.
Reminder: It often makes more sense to 'take cash out' by refinancing your 1st Mortgage at a higher loan amount but with a lower rate than you have currently. Ask your loan consultant if this makes sense for you.
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