A mortgage that has a second position to the first mortgage. Also known as subordinate financing.Second mortgages are a bigger risk to a lender as opposed to first mortgages. A first mortgage is in the first lien position which means it has priority over any other mortgages and/or liens. A Second mortgage is in the second lien position which means that the first mortgage has priority over it. For example if a consumer was to default on his home loan and the home was foreclosed upon and sold via sheriff's sale, the first mortgage would be paid out of the proceeds of the sale first and if there was anything left over then the second mortgage would be paid with the remainder. Therefore, you can see the second mortgage lender has more risk involved when they provide this loan for you. This is the main reason as to why second mortgage rates are almost always considerably higher than first mortgage rates.
A second mortgage can be a one time loan or a line of credit.
Second mortgages are often used to eliminate PMI requirements on conventional loans. This benefits the borrower because often there payments are lower than with PMI. They also benefit because intereset on mortgages are tax deductible while PMI is not.
Obtaining a second mortgage can benefit you when purchasing a home if you do not have the required 20% down to avoid mortgage insurance.
Some second mortgage loans may extend for as long as 15 or 20 years; others may require repayment in one year. If you have a fixed rate second mortgage, the interest rate is set for the life of the loan. However, many companies offer variable rate second mortgages, also known as adjustable rate mortgages or ARMs.
Many second loans are 30/15 loans. This means that the loan is amortized over 30 years, but there is a balloon payment after 15 years. Most people wont have the loan for the full 15 years, but if you did you would have to pay the loan in full at that time.
