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A
2nd mortgage typically refers to a secured loan (or mortgage)
that is subordinate to another loan against the same property.
In
real estate, a property can have multiple mortgages or liens
against it. The mortgage which is registered with county
or city registry first is called the 1st mortgage or 1st
position trust deed. The lien registered 2nd is called the
2nd mortgage. A property can even have a 3rd or even 4th
mortgage, but those are rarer.
2nd
mortgages are called subordinate because, if the mortgage
loan goes into default, the 1st mortgage gets paid off 1st
before the 2nd mortgage. Thus, 2nd mortgages are riskier
for lenders and generally come with a higher interest rate
than 2nd mortgages.
The
term length of a 2nd mortgage varies. Terms can last up
to 30 years on 2nd mortgages; however repayment may be required
in as little as one year depending on the loan payback structure.
A
2nd mortgage can occasionally be the catalyst to foreclosure
when a homeowner defaults on their loan. The second lien
holder then purchases the primary mortgage (which may still
be in good standing) and then forecloses which leaves the
homeowner losing their home to the 2nd mortgage lender.
Generally,
when considering the application for a 2nd mortgage, lenders
will look for the following:
* Significant equity in the first mortgage
* Low debt-to-income ratio
* High credit score
* Solid employment history
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