Second Mortgage Financing Options
“Second Mortgage Financing Options Basically Come In Three Forms”
Second mortgage financing options represents a loan registered against real estate directly behind a first mortgage.
A second mortgage can be arranged on virtually any type of real estate property including land zoned as residential, commercial, and industrial.
There are basically three different potential 2nd mortgage options to consider…bank or institutional second mortgage, home equity line of credit, and private second mortgage.
Depending on your financial profile and credit profile, you may or may not be eligible for all three.
A second mortgage issued by a bank is going to be similar in structure to a first mortgage in that it will have an interest rate term and an amortization period for repayment. Rates for an institutional second are going to be similar to a first, but likely slightly higher due to second place mortgage security. That being said, the rates quoted will likely be better from the first mortgage holder than a competitor due to the fact that they already control the first mortgage position.
A very popular second mortgage financing option is a home equity line of credit, or HELOC.
With this type of facility, the approved amount of the line is registered in second position against the property, but the amount advanced will be at the control and discretion of the borrower.
Interest is charged only on principal outstanding with minimal monthly principle repayment required by most lenders on amounts outstanding.
The third type of second mortgage loan is from a private mortgage lender.
A private second is typically for a period of one year but can also be for a longer period of time, depending on the individual lender.
Private 2nd mortgages also tend to be interest only payments with the full amount of the advanced principal due and payable at the end of the interest term.
A private second mortgage is very common in situations where the borrower has some level of distressed credit or cash flow where it would not make sense to mortgage refinance the first mortgage and risk getting a higher interest rate based on a weaker borrowing profile, or apply for a bank second.
This is also the most popular form of private lending due to the fact that the rate of return is higher for private investors as mortgages registered in second position carry a higher risk of loss which translates into a higher interest rate charged.
Second mortgages can be used for just about any number of purposes including but not limited to debt consolidation, renovation, child eduction, family trip, estate planning, an so on.
Selecting a second mortgage financing option is about aligning your near and long term financing requirements with the features of each type of 2nd mortgage and each unique lender program in order to arrive at the best fit.
One of the best ways to determine this is to work with an experienced mortgage broker who can go through your requirements with you as well as work through all the different options that are potentially available to you so you can make a well informed decision.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel