What is a Second Mortgage

by

Finance Wizard

There is a lot of confusion out there when it comes to a second mortgage, and the term itself is much maligned, usually associated with those trying to save their business or struggling to keep their head above the financial waters!

Unfortunately this has been the case with some borrowers, with recent media reports citing examples of homeowners taking out second mortgages with finance companies at interest rates of up to 18%, just to cover their first loan and avoid selling the property.

While this is an extreme example, and in no way indicative of normal practice in the finance industry, it shows the importance of having a professional go over your finances to look at ways to refinance and restructure your first mortgage without resorting to a potentially crippling second mortgage.

To explain the terms: The first mortgage is the

home loan

taken out with your house used as prime security. A second mortgage is additional to this and allows you to borrow against the residual equity (the part of the house you do own and which isn t mortgaged to the first lender).

For example, if you borrowed $100,000 to buy a $150,000 property, technically you own $50,000 of your house and can borrow again, using that proportion as security for a second mortgage.

If you re taking out a

second mortgage loan

, you must inform the first lender as they have to give their approval. As you d expect, this usually sets the alarm bells ringing, as the lender will become concerned about your ability to service their loan.

Interest rates for second mortgages are also not nearly as competitive (they can be up to 18%) which makes refinancing a much more attractive option, should you need the extra funds.

As always, seek professional advice from an independent mortgage broker before you think about making any changes to your existing mortgage.

Finance Ezi provide mortgages and

Home Loans

Australia wide. Information on all

bank home loans

and repayments online we have free a

home loan calculator

Article Source:

ArticleRich.com