What are first and second charge mortgages?

What are first and second charge mortgages?

A normal residential mortgage, where you borrow money to buy the home you live in, is a ‘first charge mortgage’. A second charge mortgage is an additional mortgage on the same property.

Who is paid first when a second mortgage goes into default?

If the loan goes into default, the first mortgage lender gets paid first before the second mortgage lender. This means that second mortgages are riskier for lenders who ask for a higher interest rate on these mortgages than on the original mortgage.

Which is an example of a second mortgage?

A few common examples of second mortgages are home equity loans and home equity lines of credit (HELOCs). A senior lien, such as a first mortgage, takes priority over a junior lien, such as a second mortgage. Priority determines which lender gets paid before other lenders after a foreclosure sale.

What is second priority mortgage?

Second Mortgages and Lien Priority. A second mortgage is a loan you take out using your house as security that is junior to another mortgage (a first mortgage). A few common examples of second mortgages are home equity loans and home equity lines of credit (HELOCs).

Can you get a second mortgage if you have a first mortgage?

Since a lender in a second position takes on more risk than one in the first position, not all lenders offer a second mortgage. Those that do take great steps to ensure that the borrower is good to make payments on the loan.

What happens if you default on a second mortgage?

A home’s liens encumber its title and make it difficult to sell until those liens are eliminated, usually by paying them off. In other words, if you default on your second mortgage, the lender will keep its lien on your home until it’s paid, typically through your home’s future sale proceeds.

Should I refinance or payoff 2nd mortgage?

If the balance on your second mortgage is less than half of your annual income, you would do better to just pay it off with the rest of your debt through your debt snowball. But if the balance is higher than half of your annual income, you could refinance your second mortgage along with your first one.

What happens to 2nd mortgage?

Collecting on an Unpaid Debt. A second mortgage lender can also charge-off any unpaid debt after getting a part of the sale proceeds when the first loan is paid off. This means the second lender considers the debt uncollectible, but legally the borrower still owes the money.

Should you do a HELOC or a 2nd mortgage?

A HELOC is a great option for short-term cash needs, especially if you’re going to pay it off quickly. But if you’re using a HELOC to buy a home – which you can do by having a HELOC be a second mortgage – and you don’t intend to pay it off quickly, you may want to consider a fixed-rate second mortgage.