2nd-Mortgage

A mortgage that is usually lended by claiming title to a property is generally termed a first mortgage. In case the borrower fails to pay the money, the lender can actually take over the property.

When the borrower has no means for adequate repayment he could go for another mortgage which is generally termed a second mortgage. In the past especially during the seventies and the eighties when there were little scandals associated with the mortgage market and when the real estate prices were increasing sharply this was considered a good option even by the second and third mortgage lenders as they were sure about receiving their money even if the borrower failed to repay.

However this situation has changed. Loan scandals in the markets have changed the course of mortgage loans and now a day not many equity lenders are willing for a third mortgage. It is true that even if a borrower is up to date on the first mortgage he/she would still be required to repay the second and third mortgage in order to avoid their property being repossessed. Although the property is legally registered by the second and third mortgages also, in case of default the money that is obtained from selling the property will be used initially to pay off the first mortgages and only after that would proceed to the second and third mortgages. Since a third mortgage is an agreement that is only tertiary to the first mortgage holder it is the least favorable of the three mortgages.

In spite of all this there are many advantages associated with the third mortgages. If you have equity in you home and you want to leave the first and second mortgages out of refinance then you have better chances of securing a third mortgage. A third mortgage is useful for debt consolidation and the interest rates are low when backed by home equity loans. They are also a good means of raising capital for the improvement of the home and are usually arranged with greater speed.