First and second mortgages, the pros and cons

by | Aug 26, 2013 | Real Estate

The only people who do not need to know about mortgages are those that have either paid their mortgage off over the years, have cash at the time of purchase or inherit a house upon someone’s death, the rest have a first and second Long Island mortgage.

Second mortgages are used when it becomes necessary for the family to raise additional cash, the reasons can be many but are often for educational purposes and health care that is not covered by insurance. Second mortgages have their place in a family’s financial package but they can overextend the budget if they are not monitored.

Mortgages are types of loans which are granted to purchase a building, in most cases for Americans the building is their primary residence. The loan that is granted at the time of purchase is the first mortgage. It may become necessary to raise cash and there are many lenders who will provide this cash, taking as collateral, the house. This loan is secondary and is known as a second mortgage. There is nothing wrong with taking out a second mortgage for those very important issues however there is a risk, default could mean the loss of the home even though the first mortgage payments are kept current.

A drawback to a second Long Island mortgage is usually the interest rate; it is usually higher than the rate of interest on the first mortgage. When a second mortgage is arranged there are fees and charges that are not part of the first mortgage. A second mortgage, although more expensive are usually considerably less than accumulating credit card debt.

A second mortgage should only be considered if it can be paid off before the owner sells the house and moves on. When a house is being sold, any encumbrance must be paid for before the title can be transferred to the new owner. This can make it harder to sell the house because both the mortgages must be paid off.

For most people a first mortgage is a fact of life. Although taking out a second mortgage on your home can be an attractive option, think hard about. It is important to make sure that the loan can be paid and that the household budget will not be unduly overstretched.

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