A second mortgage loan is an additional loan borrowed against the home’s already existing home loan. Second mortgage loans are most commonly used for either home repair, or for college education. They can also be used to acquire a traditional, assumable mortgage loan that has a down payment that might be too high for a buyer at that given time. For example, seconds will typically lend against the put down amount. Therefore, if you need twice as much down as you have put down already for another loan, you can borrow against it and have enough.
Because they are borrowing against funds rather than against property, they are generally risky for mortgage lenders. Therefore, the home mortgage loan rates on second mortgage loans tend to be a bit higher. In addition, if the buyer defaults on a second mortgage, the second mortgage lender needs to pay off the first mortgage. If the first mortgage forecloses, then the second mortgage lender either needs to pay off the first mortgage, or assume the payments on it.
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Reference text: Mortgage Loans: What’s Right for You?, by James E. Bridges with Deborah J. Bridges. Copyright 1989, Published by Betterway Publications, Inc., Crozet, VA