A Firsthand Look at Second Mortgages

jessica-andersTo those of you who don’t already know, the term ‘second mortgage’ refers to a secured mortgage (loan) on a property on which a loan has already been acquired (called first mortgage). Third and fourth mortgages do occur but ever so rarely. A second mortgage is subordinate to the first in the sense that the first mortgage gets paid off before it, in case the loan defaults. This makes second mortgages that much more risky and thus it commands a higher interest rate.

Tips:

–> Make sure you have a clear idea of what interest rates are offered to you from various sources. Check out banks and credit unions. Also talk to a dedicated mortgage broker Kelowna for their help and knowledge. Choose an interest plan that best suits your needs and is flexible enough. 
–> Read the terms and conditions carefully. Keep an eye out for balloon payments, which offer you low affordable installments in the beginning and expect increased payments toward the end of the term of loan. You may end up not being able to afford that increase in the installment. 
–> Think about whether or not you need various voluntary insurance policies that are offered with the loan. Many a times you do not really need to be covered or are already covered. You end up paying extra for what you don’t really need. 
–> Some banks and lenders have a rigid prepayment policy. You are asked to pay a penalty if you want to clear the loan off before the term actually ends. If things turn around for the better, the lender shouldn’t penalize you for it, should he? 
–> Last but not least, check the defaulting policy. Make sure you are aware of what happens if you default on a payment. Sometimes a clerical error will result in a default and you will end up in a pit for it. 
–> Normally, the extra costs associated with a broker application are quite considerable. Make sure you have enough money for Appraisal fees, Application costs and other miscellaneous expenses.

Second mortgages can have a term ranging up to 30 years and repayment term of the loan may range up to as little as a year. Most of these figures depend on the structure of the loan. A second mortgage can also be a prime factor in the foreclosure of the loan in case the owner defaults on the payment. In that case, the second lien holder pays up the original loan and buys the property which is usually in a good condition, and forecloses. This causes the owner to lose the property and the property now is under the name of the second line holder.