Second Mortgage


DEFINITION of 'Second Mortgage'

A type of subordinate mortgage made while an original mortgage is still in effect. In the event of default, the original mortgage would receive all proceeds from the liquidation of the property until it is all paid off. Since the second mortgage would receive repayments only when the first mortgage has been paid off, the interest rate charged for the second mortgage tends to be higher and the amount borrowed will be lower than for the first mortgage.

BREAKING DOWN 'Second Mortgage'

Since the first mortgage is used as a loan for buying the property, many people use second mortgages as loans for large expenditures that may be very difficult to finance. For example, people may take on a second mortgage to fund a child's college education, or to purchase a new vehicle. Second mortgages also can be a method to consolidate debt by using the money from the second mortgage to pay off other sources of outstanding debt, which may have carried even higher interest rates.

  1. Cross Collateralization

    The act of using an asset that is currently being used as collateral ...
  2. Lien

    The legal right of a creditor to sell the collateral property ...
  3. Consolidate

    The combining of assets, liabilities and other financial items ...
  4. Default Risk

    The event in which companies or individuals will be unable to ...
  5. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) ...
  6. Mortgagor

    An individual or company who borrows money to purchase a piece ...
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  1. What level of default rate is typical for the credit services industry?

    Credit services is a division of the financial services industry in which businesses lend money to consumers or other businesses, ... Read Full Answer >>
  2. Do FHA loans have prepayment penalties?

    Unlike subprime mortgages issued by some conventional commercial lenders, Federal Housing Administration (FHA) loans do not ... Read Full Answer >>
  3. Can FHA loans be refinanced?

    Federal Housing Administration (FHA) loans can be refinanced in several ways. According to the U.S. Department of Housing ... Read Full Answer >>
  4. Can FHA loans be used for investment property?

    Federal Housing Administration (FHA) loans were created to promote homeownership. These loans have lower down payment requirements ... Read Full Answer >>
  5. Do FHA loans have private mortgage insurance (PMI)?

    he When you make a down payment from 3 to 20% of the value of your home and take out a Federal Housing Administration (FHA) ... Read Full Answer >>
  6. How many FHA loans can I have?

    Generally, the Federal Housing Administration (FHA) does not insure more than one mortgage per borrower. This is to prevent ... Read Full Answer >>

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