Financial Information
What is a second mortgage and how can an owner and a bank or private investor benefit from it?
Question : What is a second mortgage and how can an owner and a bank or private investor benefit from it?
What situation would an owner use a second mortgage. How does the bank and the owner benefit from it?
second mortgage
Best answer:
Answer by brotherlove@sbcglobal.net
a second mortgage is when an owner has enough equity (market value of home less the first mortgage balance) in their home to take a second loan against the property.
owners can benefit because it can give them a low interest loan to make home improvements or meet other financial needs.
Lenders can benefit because the make money on the loan.
A second mortgage is using the equity in your house to leverage an additional mortgage. Some call it a home equity loan, although technically slightly different. It is totally different than a refi.
A second mortgage usually has a higher interest rate than a first mortgage and typically has a shorter payback period (say 10 instead of 30 years).
Some use a second mortgage when buying a house to avoid PMI. Other times a second mortgage is used to keep a family financially afloat (unexpected bills-i.e. medical).
The bank benefits the same way they do from any other loan-interest payments. The owner benefits because it is a secured loan and thus generally has a lower interest rate when cash is needed.