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December 3, 2012

What Are 2nd Mortgage Loans?

Category: Published Articles – admin – 5:25 pm

The Consumer Financial Protection Bureau defines a 2nd mortgage or junior-lien is a loan you take out using your house as collateral while you still have another loan secured by your house. Nationwide lenders defines a second mortgage as “a loan taken out in addition to the existing home mortgage.” Home equity loans and equity lines of credit  are common examples of second mortgages. Some 2nd liens are “open-end” and other 2nd mortgage loans are “closed-end.”
The term “second” means that if you can no longer pay your mortgages and your home is sold to pay off the debts, this loan is paid off second. If there is not enough equity to pay off both loans completely, your second mortgage loan lender may not get the full amount it is owed. As a result, second mortgage loans often carry higher interest rates than first mortgage loans.
TIP: Be careful using home equity to consolidate higher interest debts. When you use home equity to pay off other debts you really aren’t paying them off. You are merely taking out one loan to repay another. The 2nd mortgage rates may be lower in the short term, but that’s only because you are using your home as collateral. The risk is that if you can’t repay your equity loan, you could lose your property. Read the original article from the Consumer Financial Protection Bureau.

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