On Securing Your Second Mortgage

By Charles Hopkins Published 10/26/2007 | Finance
Because of the complexities in life, financing it gets harder and harder.  There are things in life that, whether you like it or not, needs to be financed.  They include education, food, transportation, medical expenses, and the like.  There are also things that you must attend to immediacy like home improvements, renovations and the like.  To finance these inevitable things, you must apply for a loan, probably a secured loan in a form of mortgage.  But what if your first mortgage is not enough to fit your obligations?  Then you will probably want to apply for a second mortgage.

Defining Second Mortgage

A second mortgage is the mortgage that you apply for after your first mortgage.  In second mortgage, the security or collateral being used is the same with the first mortgage.  Thus, second mortgage allows you to borrow money without risking having a different security or collateral.

In the past, applying for a second mortgage is a sign of difficulty in repaying your first mortgage.  You tend to apply for a second mortgage because you want more money to finance both your monthly dues at the same time your everyday expenses.  Also, having a second mortgage can cause higher interest rates on repayments.  But today, you can apply for a second mortgage, when you need it, very easily.

But why it is called a second mortgage or, if you will, a subordinate mortgage?  When your first mortgage comes into default (meaning, you are either unable or unwilling to pay for the loan that you owe), the first mortgage is paid first before the second mortgage.  Thus, you will have the obligation to pay both mortgages, starting from your first mortgage.  This increases the interest rate of the mortgage that you must repay.

When to Consider Second Mortgage

Considering second mortgage in the past is a bad idea.  I am sure that no one wants to have a mortgage loan with higher interest rates.  But because of the ever increasing demand of loans, second mortgage is very essential nowadays.  It allows you to have your loan when you desperately need it.  But with the risks that are tagged with second mortgage, you must think twice and must know when to employ such mortgage.

There are also considerations that you must think of before you have your second loan.  First is your monthly income.  You must have sufficient funds before you have your second loan.  With higher interest rates, I am very sure that you must need a budget in order to repay this.  Another consideration is the creditor.  You must have a list of prospective creditors that you can lend from that offers lower interest rates.  I am very sure that with the numerous creditors out there willing to lend you money for a low price, you can find one that can offer you the best deal.  It is just a matter of patience, perseverance and research in order to find one.  Just remember though to choose your creditor wisely.