2nd & 3rd Mortgage
What is a Second Mortgage?
A second mortgage is an additional loan taken out on a property that is already mortgaged. For the lender, this is more risky than the first mortgage, because they are in second position on your property's title. If the homeowner defaulted on their payments and the property was taken into possession, the lender in first position would always be paid out first, whereas the lender in second position runs a higher risk of not being paid out in full. To compensate for this additional risk, mortgage rates for second mortgages are always higher than for principal mortgages.
For individuals with an existing mortgage, who have good credit and more than 20% equity in their homes, the most affordable second mortgages will be in the form of a home equity line of credit . However, if the homeowner has weaker credit and/or little equity in their property, a second mortgage through a trust company or private lender would be required.
Why would I need a second mortgage and how do I qualify?
A second mortgage can be a great way for homeowners to consolidate debt. Though second mortgages often carry higher interest rates than first mortgages, these rates are still often lower than high interest credit cards, car lease payments or unsecured lines of credit.
If you use a second mortgage to consolidate debt and help you meet other financial commitments on time, this can improve you credit score and allow you to qualify for a mortgage with a prime lender sooner.
In order to qualify for a second mortgage in second position, lenders will look at four areas:
- Equity. The more equity you have available, the higher your chances of qualifying for a second mortgage will be. If you are purchasing a house, a larger down payment also decreases the risk that a lender takes on.Regular payments towards utilities, telecommunications, insurance, etc, and/or confirmation letter from service provider(s).
- Income. Lenders want to verify that you have a dependable source of income, to ensure that you can make payments.
- Credit score. The higher your credit score, the lower your interest rates.
- Property. Because other factors are risky (i.e. your credit score), lenders need to secure their investment in case you are unable to keep up with mortgage payments.
What is a 3rd Mortgage?
A 3rd mortgage is a type of loan through which the borrower receives funds secured based on the value of real estate. Qualifications for this type of mortgage vary widely by the lender and the purposes of the loan. Criteria that lenders consider include credit scores, income, and other mortgages. Most loans are based on collateral, which is usually the value of the real estate. The higher the value of the collateral, the more chance the borrower has of getting the loan for which he applied. If the borrower defaults, the collateral—usually a home—reverts to the money lender and the home eventually goes into foreclosure.
Third mortgage loans do have some benefits. Homeowners often use them to enhance or preserve the value of their place of residence by paying for home improvements. Third mortgages are generally added to a first and second mortgages for an addition, to renovate a kitchen, or build a swimming pool. They can offer consolidation loans, mortgage refinancing, and lines of credit. A lender looks at equity in other mortgages, income, debit, credit score, and employment history when considering an application for a third mortgage.
When considering a 3rd mortgage, it is important to keep in mind the total amount of regular payments on all previous mortgages to decide whether or not another mortgage is practical, and it is just as important to remember that monthly payments are required to be paid on all three mortgages simultaneously. If the loan does get approved, it would be at a much higher rate of interest compared to the earlier mortgages.
Sunny Homes Mortgage Brokers is here to help make getting the mortgage you deserve an easier process.
Whether it’s your first, second, or third mortgage; we promise to assist you along the way!
Sunny Homes will help with any and all of your mortgage concerns and we will take the weight off of your shoulders!