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What every person in need of money needs to know about second mortgage

BY: Deena David | Category: Business and Finance | Post Date: 2009-09-30
 



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   Deena David
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Mortgage is a loan against a property. The reason many people take mortgage is to purchase a home. They then pledge the house to secure the loan to pay the home provider or builder. Various financial institutions provide mortgage loans for those willing to buy houses. The reason for this is the fact that even if the person who got the mortgage is not able to repay the mortgage, the financial institution may not have much to lose as they will take over the house that was pledged with them and sell the house in the open market, thus making a profit.

In fact this is the reason how some financial institutions lost millions during the sub prime crisis. The only mistake the financial institutions did was that they never thought that real estate rates would come down, and when the rates came down, there were a lot of foreclosures leading to huge losses for these institutions. This usually does not happen as the home buyers are usually more than the number of those willing to sell them.

When an individual who already has a mortgage on the house requires more money, they are given another loan against the home and this is called as second mortgage. Second mortgages are very helpful to raise money when almost all other sources of income or getting money have been explored, but with failure. The next step a person has, is to apply for a second mortgage as there are no other options.

There can be a lot of advantages or disadvantages that are associated with second mortgages

Advantages of second mortgage:

1. Low cost than credit cards:

The rate at which the second mortgage is got is usually at a lower rate than that of credit cards. This will help the individual to save a large sum of money than what they would have spent if they had loan using their credit card.

2. More house purchase:
Many people who are smart and are also able to earn more buy another house with the second mortgage. These people will be able to repay both their mortgages to own two houses.

Disadvantages of second mortgages:

1. Rate:

Though the rate of interest charged on the second mortgage may be less than that charged for credit cards, the rate may still be more than what the individual is paying for their first mortgage that is also called as plain vanilla mortgage.

2. Mortgage fees:
The mortgage fees are also very high. This makes the mortgage very expensive. The person has to be able to pay the interest regularly or can get a bad credit history spoiling future chances of getting a loan.

3. Default:
If the person has taken more loans than what he or she is able to repay, the defaulting would cause the financial institution to take over the house.

These are the most important things that a person needs to know about second mortgage. The disadvantages may seem to outnumber the advantages, but the second mortgage can be a life saver under certain circumstances.

Article Source: http://www.saching.com



About Author / Additional Info: I have completed my Masters Degree in Paediatric Nursing. I am a writer with a passion for writing. I have been writing for some blogs and other sites. Comments are welcome at the following e mail address: deenaanddavid@gmail.com

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