2nd Mortgage is often used to help with a down payment on real estate. They are mostly offered by your lender or can be obtained from another lender.
A good example is a 20% down payment where the borrower does not have 20% to put down but can come in with 10%. That creates an 80% loan against the sales price and a 2nd mortgage at 10% and 10% from the Borrower to cover the gap to reach the 100 % needed to satisfy the lender.
Generally, the loan at 80% will have set interest rate and the 2nd mortgage will have its own interest rate. It is not unusual for the 2nd mortgage to be 1% or 2% higher than the first mortgage.
The term on the 1st mortgage will be generally 30 years the term on the 2nd mortgage can be 5 years or longer. Payment is made on both mortgages as 1 monthly payment.
In the case of a 30-year 1st mortgage the monthly payments will continue for the life of the loan In the case of the 2nd mortgage the payment continues for the time period stated in the contract or note. in the case of a 5-year term, the borrower will stop making the payment at the end of the stipulated term. Having a 2nd mortgage is an excellent way to acquire property that normally would not have been made available to the borrower.
Another way to use a 2nd mortgage is when you want to pull cash out of a property. The 2nd mortgage is a pledge or promise to repay the loan amount to cover the cash out that is being requested from the equity held in the property.
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