In today’s economy, many people are considering second or third mortgages on their home. This can be risky and generally not advised for anyone who intends to use the money from the additional loans to float the payments on their original loan. Further problems arise if the original loan was to enter default and foreclosure became a possibility.
Risk vs. Reward
Typically, people take out second or more mortgages on their home in order to secure quick cash that can be used from anything from home renovations, debt payments to purchasing other properties.The appeal of quick cash is enough for some people to outweigh the potential for danger if the payments were to become threatened by financial hardship.
These loans are termed “second” mortgages because they are a loan that is in addition to the original mortgage loan and carry second or more priority over the title of the property. A second loan lender holds far more risk in lending than the original lender, which is why these types of loans often come with higher interest rates. If payments were to default on the original mortgage loan, these lenders are less likely to get their money when the home does enter foreclosure or is sold. Defaulting on payments to the second or more mortgage holder can quickly lead to a lawsuit. While these lenders cannot legally foreclose on the property without the cooperation of the original loan holder, they can sue for payment of the debt.