What Is a Second Mortgage?
A term that is often thrown around by homeowners is second mortgage, as in,
"I had to take out a second mortgage on my home to put my kid through school,
" when it is used in the literal sense or, "I'd love to eat at Chez Nous,
but I hear you need to take out a second on your house just to tip the waiters there,
" when it is used in a figurative sense. But what is a second mortgage really?
How does it work? And can you refinance a second mortgage the same way you can a first,
even with bad credit?
A second mortgage is a loan which is secured by the equity your home. Just like your
original mortgage, the home is used as collateral in case of default. When you take
out a second mortgage, a lien is placed against your home in the "second
position" (this means that in the event of the home's sale or foreclosure the
first mortgage lender gets paid first, then the second mortgage lender gets paid).
Second mortgages are taken out for an amount equal to or less than the equity in the
home, but usually for a greater amount than you would be able to get in a signature
loan. A second mortgage is the same as a home equity loan and the two terms are used
interchangeably. A second mortgage may be a straightforward loan or it could be
taken out in the form of a line of credit (LOC) account.
Equity is the difference between the value of your home and the amount you owe on it.
If the house is worth more than you owe (as is usually the case), then you have that
much equity. If the house is worth less than you owe, you have negative equity; not
a good thing.
People who take out second mortgages on their homes usually do so to cover some
large expense like home improvements or an automobile purchase (sometimes the second
mortgage can be obtained for a lower interest rate than a traditional automobile loan)
or to send a child through college. Whatever the reason, a second mortgage can be a
good loan to get when you need to.
Can a second mortgage be refinanced with bad credit?
One of the nice things about a second mortgage is that it is, in almost every way,
identical to a first mortgage. It can be refinanced just like a first mortgage, even
if the homeowner has less than perfect credit. Refinancing the second mortgage works
just like refinancing the first, a loan is taken out to pay the original loan and
switch the financing to a more attractive interest rate. A bad credit refinance will
carry a higher interest rate than you'd pay with good credit, but if you manage to
get a lower rate than you're currently paying, you're good to go with your refinanced
second mortgage.
Applying second mortgage is an easy process. You can submit just one simple application
with no initial credit inquiry and get multiple no obligation quotes.
Find out here!
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