Understanding A Second Mortgage - part 2
by Norman Fleming
The same theory holds true with a second mortgage. Because the lender of the second mortgage is second to be paid off in the event of a default, and because there is a greater chance that there might not be enough equity in the home to pay off the second mortgage in full, second mortgages are usually given at a higher interest rate than are first mortgages; irregardless of who the borrower is.
Shorter Terms
Although you will have choices for terms when selecting your second mortgage, in general the terms given for them are shorter than those of a first mortgage. This is primarily because the amount of the second mortgage is generally much lower than that of the first mortgage.
Second mortgage repayment terms can vary considerably, so it is important that you look around for the one that is best for you. For the most part they range in length from 2 - 20 years, with the majority of second mortgage loans being 5 - 10 years.
Just as the length of the second mortgage can vary, so can other repayment terms. The majority of second mortgages are paid back in equal monthly payments with a portion of the payment going to interest and a portion to the principal balance, just like a first mortgage. However, some are different such as those known as interest only or balloon mortgages. In that case your monthly payment will go only towards interest and the entire principal will be due at the end of the second mortgage term.
When considering a second home mortgage, be sure to shop around and then talk to lenders to ensure that you get the best deal for you!
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