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Primary Mortgages

May 27, 2008  |  Difficulty: Easy

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The primary mortgage is the basically what it sounds like - the main (and most likely the only) mortgage on a home or property.

Primary mortgages are not that different from a secondary mortgage. The only real difference is the fact that the primary mortgage will be paid off first when and if the property is sold. Another slight difference is that the primary mortgage is often gained with a lower interest rate when compared to a secondary mortgage. This is very typical because the lender of the secondary mortgage is taking a risky step. How so? If the property is sold, the primary mortgage will be paid off first and this of course, leaves a significant chance that the second mortgage is left completely unpaid. And really, the chances that a person will make payments on a mortgage loan for a home they don’t own is very, very slim.  This means that the lender of a secondary mortgage has an increased chance of default, and a decreased chance of having the loan totally paid back.

Since the risk is high, the interest rates are high as well.

Most of us never hear too much about secondary mortgages, because the majority of homeowners will need only their primary mortgage. Recently, secondary mortgages have become less common. This is due to the fact that lenders are really competing to get your business, which means they offer re-financing options that help consolidate all your debt into one mortgage. This frees up equity and lowers the need for a second mortgage.

In the past, you had to get a secondary mortgage in order to have access to your equity. There wasn’t any way that you could increase the size of your primary mortgage to take advantage of the equity. A secondary mortgage was needed to do so. 

In the present day, refinancing opens up the equity so that a homeowner can use it for renovations or for debt consolidation. You must know what you are doing before you decide to refinance. If refinancing goes wrong, the value of your home can go down drastically. Also, your equity is money that you will be able to use only once, and you will have to pay it back within future mortgage payments. Keep all this in mind before increasing the size of your primary mortgage.

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