Although a second mortgage ranks lower than the first or original, in the same way as a first mortgage, it is still a secured debt with your home as collateral. This gives lenders the ability to move forward with foreclosure after a first or second mortgage has gone unpaid. However, because the second mortgage lender is second in line to collect on foreclosure, sometimes it’s not worth it.
When it comes to foreclosure, the lender must be able to recover at least part of your loan for foreclosure to be beneficial to them. A home that has considerable equity is often the only way a second mortgage lender can pull it off. When a home’s equity exceeds what’s left on the first mortgage, that means:
- There will be equity left in the home after the first mortgage lender is paid off, so
- The second mortgage lender will also collect some or all of it to cover your loan.
When this is not the case, and the home is worth less than what is owed on the mortgage, the home is considered “underwater.” In this case, the second home loan is more or less unsecured. The homeowner no longer has enough equity in his home to pay off the first mortgage, let alone the second mortgage loan. When this occurs, the second mortgage lender sees no benefit in issuing a foreclosure, as it probably won’t amount to the lender collecting on any part of the loan.
In this situation, however, the second mortgage lender sometimes has options. If the homeowner also doesn’t pay his first mortgage, then the first mortgage lender is more inclined to foreclose, since he will be the first to collect at least some, if not all, of the loan from him. When this occurs, the second mortgage lender may have the right to sue the homeowner for defaulting on the loan.
If you are the target of a mortgage-related lawsuit or facing the threat of foreclosure, it is important to seek the guidance of an experienced foreclosure defense attorney as early in the process as possible. Contact our office to schedule a meeting to discuss your specific situation and allow us to help you identify your options and which one may be right for you.
the second mortgage
It is a mortgage loan similar to your primary mortgage. It is disbursed in a single payment, and the lender obtains the lien on the title of the property (second only to the mortgage). This credit has a fixed or variable rate; once the only disbursement has been made, it has a repayment term of between 10 and 30 years. So if you’re looking for a single-use home loan, a second mortgage is a great proposition. Here you have specific information about this loan with OAS FCU.
home equity line of credit
This is an open line of credit secured by the equity in the property. In general, this mortgage loan is usually variable-rate – although some lenders offer them at a fixed rate. It is not normally used in a single disbursement (although it is possible). The owner, during a certain agreed period, can make withdrawals from the line of credit at his discretion. Once the agreed withdrawal period ends, he has an additional term to repay all the debt. The withdrawal period lasts between 5 and 10 years, followed by an amortization period of between 10 and 20 years; This credit offers flexibility in its use. Therefore, it is the best option for someone seeking financing for multiple expenses over time. As with the second mortgage, the property guarantees the loan.
Is there an advantage of one over another type of credit?
The advantage of each of these loans lies in their usefulness.
On the one hand, the second mortgage is convenient if you know how much money you are going to need, and you know that you are going to need it all one at a time. They have the advantage of having an attractive rate, a fixed payment during the life of the credit (as long as it is a fixed rate), and a longer repayment period (that is, a lower payment).
On the other hand, the mortgage line of credit is convenient if you are going to have different expenses for some time. It allows you to use only the amount you need, and payments are calculated using what you owe – not the value of the line of credit itself. In addition, as you repay the line of credit during the withdrawal period, you can count on its use again.