1st & 2nd Mortgage
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Basically, you can get a home equity line of credit (HELOC) secured by a 2nd mortgage behind your first mortgage, or a 2nd mortgage that is a separate loan on the property. For the lender, this is more risky than the first mortgage, because they are in second position on your property's title. However, if the homeowner has weaker credit and/or little equity in their property, a second mortgage through a trust company or private lender would be required. Lenders are taking a higher risk of losing money with a second mortgage because they're not in line to get paid first should you stop making your mortgage payments. This is why second mortgages almost always have a higher interest rate than a conventional mortgage. A second mortgage is a home equity loan that allows homeowners to borrow money from the equity in their home, without refinancing their current mortgage. Equity is the difference between the appraised value of the home and the amount owed on the first mortgage.
Why Are Interest Rates Higher On A Second Mortgage?
The lender for the second mortgage takes on more risk than the provider of the first mortgage because they would be in second position on the property's title. If your financial situation has recently changed then refinancing your second mortgage can help you renegotiate the term of your loan. In certain cases you might also be able to consolidate your first and second mortgages into one loan. If you have a mortgage or two you should always keep refinancing.