Second Mortgage

An additional mortgage on property. In case of a default the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and usually carry a higher interest rate.

A second mortgage typically refers to a secured loan (or mortgage) that is subordinate to another loan against the same property. In real estate, a property can have multiple loans or liens against it. The loan which is registered with county or city registry first is called the first mortgage or first position trust deed. The lien registered second is called the second mortgage. A property can have a third or even fourth mortgage, but those are rarer. Second mortgages are called subordinate because, if the loan goes into default, the first mortgage gets paid off first before the second mortgage. Thus, second mortgages are riskier for lenders and generally come with a higher interest rate than first mortgages. In most cases, a second mortgage takes the form of a home equity loan and the two are synonymous, from a financial standpoint. The difference in terminology is that a mortgage traditionally refers to the legal lien instrument, rather than the debt itself. The term length of a second mortgage varies. Terms can last up to 30 years on second mortgages; however repayment may be required in as little as one year depending on the loan structure. A second lien holder can foreclose when a homeowner stops making payments to the second mortgage holder, even if there is no equity in the house. The second lien holder can foreclose even if the homeowner is making payments to their first mortgage holder. When a second lien holder forecloses, they do so subject to the first lien. The second lien holder may purchases the primary (first lien) mortgage (which may still be in good standing), but they are not required to do so. Regardless, if the second mortgage holder forecloses, this will result in the homeowner losing their home foreclosure. Generally, when considering the application for a second mortgage, lenders will look for the following: