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.
What is a second mortgage?
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. It is very common that second mortgages are secured by high risk lenders at interest rates staring in the 8% - 9% percentile.
The term length of a second mortgage varies from short term lasting 12 to 24 months to long term that 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. Second mortgages can be interest only loans or proportionally blended principal and interest payments.
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