Is a Second Mortgage Bad for Your Credit?
The term second mortgage is thrown around quite a bit, sometimes it’s used correctly and sometimes it isn’t. There are a number of facts about second mortgages that are important to know before you start the process of applying for one.
It’s not a mortgage on a second property
A second mortgage is another mortgage on a single property where there’s already another mortgage. It simply means that if you default, or when you sell your house, the lender with the second mortgage is second in line to be paid out after your primary lender.
It’s not a last resort
Sometimes second mortgages are seen as a last resort for people who can’t get a loan via conventional channels, but that isn’t true. Many products, like a Home Equity Line of Credit (HELOC) are technically second mortgages but they aren’t labeled as such. There are a variety of options when it comes to second mortgages.
Typically second mortgages are given by smaller, private lenders but they definitely are appropriate for the right people in the right situation. If you have been in your home for a number of years and have a lot of equity in it then you might have the appropriate leverage because the lender knows they have enough security in your property.
They don’t hurt your credit, unless you don’t make payments
Overall, like all other debt agreements you have to make your agreed upon payments otherwise you’ll find yourself in default. Even if you’re paying on your first mortgage, your second mortgage lender could start a foreclosure process if you don’t make your payments.
It’s important to consider all aspects of what borrowing more money will mean before you sign any kind of paperwork. It’s important to understand exactly what the terms you’re agreeing to are and what your obligations will be. If you have any questions, we’re here to help. Give us a call!