A second (2nd) mortgage is a loan taken out on a property which is already mortgaged. In other words, it is a type of sub-ordinate mortgage made while the original mortgage is still in effect. In case the borrower defaults on the loan, the original mortgage gets paid off prior to the 2nd mortgage. The rate of interest charged for the 2nd mortgage is therefore higher & the amount borrowed is lower than the first mortgage.
When considering an application for a 2nd mortgage, the main factors that lenders look for are –
- Significant equity in the first mortgage
- High credit rating
- Good employment history
- Low debt-to-income ratio
Why Use A 2nd Mortgage?
There are scores of reasons why a 2nd mortgage may prove useful for you. It is appropriate particularly for the times, when you require a huge amount of money, but do not have enough savings or credit on the credit cards. If your credit score has dropped since you took your first mortgage, the option of remortgaging could burden you with more interest on your entire mortgage, instead of just on the extra amount that you wish to borrow. In such a situation, taking out a second mortgage is therefore a wise decision.