What does it mean when you have a second mortgage?
Rilo Kiley Rules asked:
Do you make two payments at the same time? Or does that mean that if you had a 30 year mortgage you now have a 60 year mortgage or something else.
Do you make two payments at the same time? Or does that mean that if you had a 30 year mortgage you now have a 60 year mortgage or something else.
I’m sorry if this is a lame question. I’m 17 and haven’t bought a house yet, and I’m just curious.
Tracy
July 22nd, 2009 at 8:19 am
Catherine
you have 2 notes that must be paid every month for the terms of each note
July 23rd, 2009 at 8:17 am
Sara
Here’s an example: You buy a house for $100,000. You put $10,000 down. That means you have to finance (get mortgages for) $90,000.
Sometimes people just get one mortgage–a “first” mortgage. In this case, they’d get a mortgage for $90,000 from one lender. One payment. Let’s say it’s a 30 year mortgage.
Sometimes people get two mortgages–a “first” mortgage and a “second” mortgage. Usually the second mortgage is for less than the first, and usually at a higher interest rate. So, in our example, someone might get a $60,000 first mortgage and a $30,000 second mortgage.
Both mortgages start running when you buy the house. So, no, it’s not a 60 year mortgage. It’s two 30 year mortgages running at the same time. So every month you’d write two checks: One for the first mortgage and one for the second.
Usually, it’s better if someone just has one mortgage. As I mentioned above, the second mortgage usually has a higher interest rate. On the other hand, there are a bunch of reasons why someone might have a second mortgage. (A few years ago, when you could get 100% financing, you might have the first mortgage covering 90% of the purchase price and the second mortgage covering the remaining 10%. Or if your first mortgage is for 80% or less of the purchase price, you don’t have to pay private mortgage insurance. So some people will get an 80% first mortgage, and then a 10% second mortgage, and only pay PMI on that much smaller second mortgage.)
Actually, not a lame question at all. It’s a good one; more grownups should have been asking exactly that question a few years ago.
Hope that helps.
July 24th, 2009 at 2:11 pm
Ronnie
Second mortgages usually occur when someone needs a large sum of money for something, usually to remodel the house, buy a car etc.. It is almost the same as owning two houses. You make two payments every month for 30 years (or however long the mortgage is for) the big difference is that you only own one house and owe usually more than the house is worth. Altho the second mortgage is very risky for the lender because in alot of cases if the house is foreclosed on the second mortgage never gets paid. The priority is the first mortgage.