Silent second mortgages are mortgages that are taken out on properties that already have mortgages. With this particular approach, the holder of the first mortgage is not aware of the existence of this new second mortgage. Although legal in many parts of the world, this type of agreement can easily be used to structure fraudulent real estate deals.
One of the most common reasons for obtaining a silent second mortgage has to do with financing the down payment when a person wants to purchase a property. For example, the original mortgage lender may require the homeowner to make a payment amounting to twenty-five percent of the purchase price in exchange for extending the loan to cover the remaining seventy-five percent. If the owner only has ten percent of the required amount, he can apply for a silent second mortgage as a means of meeting the terms and conditions related to the extension of the first mortgage. Instead of the original lender knowing about this arrangement, the second loan is secured without informing the first mortgage holder of the existence of the loan.
Assuming that the homeowner can pay off the silent second mortgage in a short period of time, while maintaining monthly payments to the first mortgage lender, the strategy allows for the real estate purchase to be made without causing any hardship for any of the three parties. involved. If the debtor is having trouble paying either mortgage, this could lead the holder of the first mortgage to realize the situation. Depending on the laws that apply in the area, the owner could be found guilty of fraud.
The reason a silent second mortgage is sometimes considered fraudulent is that taking out that second mortgage without the knowledge and consent of the original lender violates certain provisions found in the original mortgage contract. In addition, the existence of an undisclosed second mortgage has a negative impact on the original lender, since he or she has a higher risk of the loan than previously thought. In the event that the homeowner defaults on either mortgage, the potential to lose money on the loan is much greater, as the two lenders must now work together to declare the loans delinquent and find a way to pay off the property. as part of the recovery. In situations where the value of the property has decreased since the original purchase,
Second Home Mortgage: Things You Should Know
Having a second mortgage on a home means receiving an amount of money to mortgage a property on which a first mortgage already weighs, which may not have been settled yet. This is an option that many owners choose when they need access to credit , either to make reforms in this home or to face some other investment or expense. The mortgaged property works as collateral for the payment of said loan.
What is a second home mortgage ?
As we have said, it is about requesting an amount of money by putting as collateral a property that already appears as collateral for a first mortgage. In no case are we talking about a refinancing, because the first mortgage will not be canceled and we will open a new one with a single amount, nor about novation, since we will not replace the first obligation to increase its amount or modify its conditions .
How much money can I request with a second home mortgage?
As a general rule, in a second mortgage on the same home, a percentage lower than the appraised value is requested. While in the first mortgage the amount can reach up to 80% of the appraisal, in second mortgages this figure is around 50%.
Why apply for a second mortgage and not a personal loan ?
Mortgages usually offer a better interest rate than personal loans. Even so, with a mortgage loan, the terms to repay the money are usually longer than in a personal loan, so it will be convenient to compare the amount of interest that you would have to pay in both cases to choose the option that best suits your needs. needs and obligations.
Does it have the same conditions as the first mortgage?
Usually not. The second mortgage usually has different conditions than the first, since higher interest rates are usually imposed. In addition, financial institutions usually require the settlement of the debt in a shorter period of time.
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