If you specify a property that has already been mortgaged to acquire an additional loan, the additional loan will be titled as Second Mortgage. Most of the banks are reluctant to become a party to the second mortgage, as it puts them in the second position on the property’s title. This means, the lender of the second mortgage would be compensated on the borrower’s property after the lender of principle mortgage is reimbursed.
If you have a high credit score and more than 20% equity in your home, you might qualify the eligibility criteria for home equity line of credit (HELOC). Even if you have a low credit score and less than 20% equity in your house, trusted companies and private lenders are still there to help you out. However, the mortgage rate levied be them is always high, due to the risk involved in the second mortgages.
|LENDER||FORM OF CREDIT||INTEREST||CREDIT SCORE||MINIMUM EQUITY|
|Mortgage Bank||Home Equity Line of Credit||3.50%||650 – 900||25%|
|Trust Company||Mortgage (in second position)||15%||550 – 700||10 -15%|
|Private Lender||Mortgage (in second position)||10%||below 600||10% or below|
Need of Secondary Mortgage
The first and basic reason why you draw towards second mortgage on your home is the need of money, as your property can fetch you bigger loans in economical way. The other motive behind second mortgage is the debt consolidation. You can absorb other debts like credit card payments, auto loan payments or student loan payments into a single big mortgage. Through this, the overall interest ratio will drop down regardless of the high rates of secondary mortgage.
Requirements of Secondary Mortgage
While reviewing the request of secondary mortgage, lenders usually remark the following factors. Borrower’s equity does influence the lender’s decision, as it reduces the risk in recovering the mortgage amount. A higher equity not only helps the borrower in acquiring the mortgage, it also brings down the mortgage rate.
The other influencing factor is income of the borrower. If you are earning fine amount of money from your job, the lender is convinced that you will be able to pay your debt back.
Your credit history also plays a significant role in persuading the lender to approve your mortgage. A high credit score assures your ability to make the timely payments.
A physical asset or property is the most looked upon security against the debt, as the lender can easily recover his investment in case of default. Moreover, your property can help you acquire bigger loans.