2nd Mortgages

Second mortgages (2nd Mortgages) are typically mortgage loans that are secured by real estate and are in a subordinate position to another home mortgage loan on the same property.

Real estate properties may have multiple mortgage loans or liens attached to them. The first home mortgage loan registered for the property is called the first mortgage or primary mortgage. Mortgages registered later than the first mortgage are considered second mortgages or 2nd mortgages.

In most cases a 2nd mortgages come in the form of home equity loans. Home equity loans and second mortgages are considered the same thing. The term loan applies to a debt while the term mortgage refers to a debt secured by a specific property. In effect, second mortgages are home equity loans secured by a piece of real estate.

When a property is sold in a foreclosure sale the holder of the primary mortgage is paid first, then the holder of the second mortgage loan and so on. Since the lenders on second mortgages have a higher risk of loss 2nd mortgages usually have higher interest rates then first mortgages.

There are many repayment periods available for second mortgages. A 2nd mortgage loan may have a term as long as 30 years, or as little as one year. The term is usually decided when the loan is originated.

Occasionally second mortgages will be the cause of foreclosure proceedings. When the home owner defaults on the 2nd mortgage the lien holder will purchase the first mortgage loan from the issuing lender. If there is enough equity the lien holder might initiate foreclosure proceedings to sell the property at a profit.

Usually, when a home owner desires a second mortgage loan the lender will review the borrower’s current equity in the property, ratio of income to debt, credit history and employment history. If this analysis leads the lender to believe there is a low risk of default the lender will issue the 2nd mortgage loan.