Both first mortgage and second mortgage loans are financed with your home as the collateral. First mortgage is the loan you used to buy the house while second mortgage is used to describe what lenders and banks usually call a home equity loan. The mortgage is also called a note and it is not an unsecured note or an unsecured debt instead it is secured by our home. So the mortgage is what ties the note to the property or sometimes what is called the debt to the dirt.
The primary purpose of getting your first mortgage is to buy your home. Many Americans who own homes today would not have been able to do if there was no loan. For those people who can’t afford a sizable down payment there are government backed options to get financing for a home loan. And for those who can afford to pay 20% down on a purchase there are conventional loan programs available.
Benefits of First Mortgage
One of the benefits of getting a first mortgage is that it allows us to become a homeowner and have a place we can call our own. Apart from this, there are also financial advantages attached to this. Owning a home is a form of investment and home loans usually have lower interest rates when compared to unsecured loans. Beyond that, the interest on the mortgage is tax deductible which can be a big benefit for any taxpayer who itemize.
Drawbacks of First Mortgage
One of the major of financing a home loan is that your ability to repay the debt is tied to your ownership. The bank typically maintains a lien on the property so if you don’t make payments they can foreclose or repossess the property.
Second mortgage loans are also referred to as home equity loan. It is a financial maneuver homeowner’s can use to tap into their home’s equity. This gives you an option to tie an installment loan to your property rather than getting a personal loan. You can use second mortgage for different purposes including college expenses, fund property renovations, business start ups, as well as other big-ticket purchases. The intent of second mortgage is to borrow money from an equity that has been established in your property. Some of the cost associated with second mortgage includes origination fees, costs to run a credit check, appraisal fees. Although most home equity lenders don’t charge closing costs, the borrower ma y still have to pay closing costs in certain ways. This is because the cost is included into the total cost of taking out the second mortgage.
Benefits of Second Mortgage
Second mortgage loans also have lower interest rates when compared to an unsecured loan. Also, the interest on home equity loan is tax deductible.
Drawbacks of Second Mortgage
The major drawback with this type of loan is that you risk not being able to repay the debt, thus making you to risk foreclosure. Additionally, adding another monthly installment to those you pay on your first mortgage can restrict your budget.