Instead of owing just one mortgage debt, most American families actually have two mortgages. What happens if you are facing foreclosure – and it is the primary mortgage lender who will be paid off first? What about the second lender? 

For most people who have two mortgages, they actually consider not paying their second mortgage. How would this affect your finances? That is exactly what we will try to discover here. 

First, let’s look at the reasons why homeowners take on a second mortgage in the first place. Basically, it’s literally a second mortgage – a loan which is borrowed against the value of your home.  

In the event that you default on your home loan, it is the first mortgage which would be paid off first before any other funds go towards the second mortgage. The division between your first and second mortgage is usually on an 80/20 percent basis. 

This is a relatively common financial option taken by homeowners who would like to gain access to some extra cash. If you’re looking for money that you will allot for a home improvement project, debt consolidation, purchasing of additional homes, avoiding private mortgage insurance or creating a home equity line of credit – a second mortgage is definitely for you. 

What Happens If You Fail to Pay Off Your Second Mortgage 

If you are a homeowner who is facing serious financial difficulties, can you actually get away with not paying your second mortgage? Although it is true that the second mortgage lender is in a subordinate position to the primary lender, it does not mean that they cannot take action against you as a borrower if you fail to pay off your second mortgage. 

To have a deeper understanding of what exactly will happen, here’s a quick look at the risks that a second mortgage lender takes: 
- In the event of a foreclosure, it is the primary mortgage lender that would be paid off first. 
- Second mortgage lenders are ‘forced’ to apply a higher interest rate because they do handle a higher risk as compared to the primary mortgage lender. 

Should a homeowner refuse to pay off the second mortgage lender and prioritize the primary mortgage in the event of a foreclosure – it is simply delaying the inevitable. Let’s say that you already settled a deal with the primary mortgage lender and the foreclosure was put off. 

Once your primary mortgage is paid enough to get some equity on the property and you did not pay anything on your second mortgage, the lender will be the one to foreclose your home. 

Not paying off your second mortgage would also negatively affect your credit, not to mention the piles of additional charges and late fees that you will incur. 

Looking for a Solution 

So what are you supposed to do if you would like to prioritize your primary mortgage loan – but there’s still your second mortgage that you need to deal with? Some of your options include loan modification. You can specifically apply for the Home Affordable Modification Plan. Freddie Mac and Fannie Mae are now supporting refinancing of up to 125% of your current home value under HAMP, so it’s definitely something that you need to check if you qualify for. 

Not paying off your second mortgage loan may not necessarily be the best solution – but it is something that you can do only when the lender refuses to give you a loan modification or a refinancing plan. When taking this course of action, always seek legal advice from your lawyer.

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About the Author:
Rob K. Blake, mortgage expert and author, educates mortgage shoppers on finding local providers by state like Maryland Mortgage Brokers and Lenders and provides reviews of national companies like AmTrust Bank Mortgage.
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Although the funds that are made available to you through your HELOC Equity credit facility can be used for any purpose, it is advisable that you do not use the credit line for luxury purchases, vacations, or new cars. Again, it is completely up to you how to use these funds. However, it is important to remember that you are extracting the equity out of your primary residence (which for most people serves as their principal life investment). The temptation to use a HELOC Equity line for luxury purposes is quite understandable. In regards to acquiring credit, a HELOC is one of the east financing vehicles that an individual can obtain. Again, this is because banks and mortgage companies like making loans against tangible collateral such as real estate (especially owner-occupied residences). For most people, acquiring a HELOC gives them more access to capital than they have ever had in one sitting.

If you have spent twenty years paying your mortgage then there is a substantial chance that you have built a massive amount of equity into your home. If you own a $300,000 and have $100,000 left on your mortgage then you have almost $200,000 of net value in your home. Given today’s loan-to-value rates, you could potentially receive a line of credit that equals $150,000 to $160,000 based on your equity. For most people, obtaining a HELOC Equity line feels like a windfall profit. However, it is not. It is a loan. Like with any debt instrument it should be used wisely. Many people would not quickly rack up $150,000 of credit card debt, but for some reason, studies have shown that they have a greater inclination to do so with a home equity line of credit. As such, when thinking about acquiring a HELOC Equity facility, it is imperative that you think of the ways that you intend to use the proceeds.

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About the Author:
HelocEquity.com is a website dedicated to the issues of pertaining to how to obtain a Home Equity Line of Credit while focusing on HELOC Equity.
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Whether you are getting a first mortgage on your house, refinancing an old loan for better rates or terms, or taking out a home-equity line of credit, there are several traps that you can fall into if you aren’t careful.

Especially now that the economy has done so badly for the last few years because of this major recession we are in that has lasted from 2008 all the way up to 2010, banks have been less apt to loan money and when they do they may be more strict about how they do it.

This translates into several traps that you can fall into that may make your loan more expensive than it should be. But if you know about these things before hand then you can confront your bank about them and threatened to go to a different bank if they don’t remove them which is why I wanted to write this article for you today.

I’m pretty sure that everybody is aware of the variable interest rate trap where a bank tries to give you a variable rate that can go up or down every year depending on a set of criteria that the bank defines. In times of falling interest rates these are good for you because your interest rate can go down; but interest rates right now are at all-time historical lows, meaning they have nowhere to go but up so it’s a very bad idea to get a variable interest rate loan right now.

I’m also probably sure that everyone’s aware of the trick that banks use to try and get you to sign a 20 year loan instead of a 30 year loan. Yes by definition you’ll pay off a 20 year loan quicker, ten years quicker to be exact! And yes it’s true that you’ll pay less interest… but the fact remains the same that a 20 year loan will give you a much higher monthly payment than a 30 year loan will and especially for people who are refinancing in order to lower their payments this is an especially important fact to consider.

But in this article I wanted to discuss one of the less known traps that you can fall into. I’m talking about balloons. Many borrowers have never even heard of what a balloon is.  But they can be especially common in refinances and second mortgages. Basically a balloon is a balloon payment. It gives you a very low interest rate for a period of time, say five years. But then after that period of time the entire amount of the loan becomes due all at once.

In the old days this was attractive because you could take advantage of low interest and low payments for those first five years and then when it came time for the entire alone to be due on the fifth year you could simply go out and get a new loan and used the proceeds from it to pay off the old loan. The problem is, with the recession it’s harder to get new loans than it’s ever been so you may not be able to refinance in five years and then you’ll be stuck paying the entire amount of your loan all at once which can be devastating for most people.

So there you have three common and not so common traps to look out for when it comes to getting a mortgage. Hopefully now you have the information you need to get the best deal possible so that you pay the least amount of money for your loan.

Jason Markum has been an article writer online for well over 13 years.  When he’s not writing articles, he has a good time running a dinnerware web site where he also reviews corelle square dinnerware for your home use.
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