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Buying a second mortgage for homes has
emerged as a feasible option for people who are unable to make the
requisite down payment for the property. First of all it is
important to understand how a second mortgage works. Suppose you
wish to buy property and don't have the required 20% of the sale
price as the amount to make the down payment. One option for you is
to opt for private mortgage insurance for the required amount. In
this, you will again need to make a small down payment and then make
monthly installments for the rest of the value.
Another option is to take loan in two installments. Let us, for
example, assume that you are in a position to make 10% down payment.
That means you will require 90% of finance. In this case, you will
get 80% loan as the first mortgage and the remaining 10% will be
financed as the second mortgage.
This is also called
piggyback financing. But you must keep in the mind that interest
rates for second mortgage is higher than that of the first mortgage.
This is because the risk factors are greater with the second
mortgage loan as compared to the first mortgage loan. If there is a
financial crisis, the primary loan or the first mortgage loan will
be paid first. The second mortgage or the subordinate loan will be
paid later.
To sum it up, second mortgage loans are
loans with a fixed rate of interest. As in the case of the first
mortgage loan, the second mortgage loan will depend upon your credit
history and also the current rate of interest prevalent in the
market. Generally the rate of interest is higher but the fees
involved are lower.
Second mortgage loans provide an
excellent opportunity to raise money for homebuyers facing financial
difficulties in raising the requisite money required for the down
payment. Therefore, buying a second mortgage is fast gaining
popularity for raising the cash needed for buying property.
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