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Secondary Mortgages

May 27, 2008  |  Difficulty: Easy

Path to mortage
Sometimes a secondary mortgage can’t be avoided. If you have to take on this responsibility don’t feel hopeless!

If you found the right home and you made the down payment and negotiated the primary mortgage, but find that you still don’t have enough money to cover the home, you may need a secondary mortgage. Secondary mortgages will have a higher interest rate compared to the primary mortgage; which means more money.

Before you make the decision to get a secondary mortgage talk with the lender of your primary mortgage. Your primary lender may be able to give you a larger primary mortgage. This is the ideal option if possible.

Typically, you will seek out a secondary mortgage to make needed repairs to your home or to cover yourself from a financial emergency. So, secondary mortgages are often just interest loans that are listed second on the property title. They will be paid off in full only after the primary mortgage has been completely paid. A secondary mortgage usually comes with a fixed interest rate that has a term that spans from 5 to 20 years.

Secondary mortgages are also known as home equity loans, home improvement loans, debt consolidation loans or home equity lines. Lenders require that these loans be secured by a second mortgage lien on the property. The liens ensure that the loan is paid off in full in the case that the property is sold.

If you have a secondary mortgage or debt consolidation loan, it must be paid off along with the newest loan. What you are essentially doing is placing a higher debt in the second mortgage. If the loan is for your primary property, the interest paid on it could possibly be tax deductible.

It is important for you to speak with the lender of your primary mortgage before signing your name on the contract of a secondary mortgage. It is possible that your property has increased in worth since your initial purchase. This means that there may be equity in your property that the primary lender can place into your primary mortgage. This can give you the cash that you need, but be aware that this will extend the time that you will pay for your primary mortgage.

This is a good deal only if your primary lender is willing to give you the larger mortgage with your present interest rate, or a lower interest rate with the absence of extreme fees. Read the fine print before signing a contract.

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