Most young people, as well as old people, have a mortgage on their home. With the prices of homes at an all-time high, very few people can pay cash for their home like they did many years ago. Some people even have a second mortgage on their home. A second mortgage is not a lot different from a first mortgage, but a foreclosure of second mortgage can be slightly different from a first mortgage foreclosure. The results, however, are the same-homeowner losing part of their home- with a foreclosure second mortgage or first mortgage.
Some people have not even heard of a second mortgage or don’t understand why a person would have two mortgages on their home. There are a few good reasons. With economy as it is today, many people have difficult time saving money. This makes it difficult if an unexpected expense comes up that requires cash. Or perhaps you want to take the family on that long awaited vacation, but don’t have the cash.
Most people have equity on their home above and beyond what they owe on their mortgage so they borrow money against their home. For instance, if their home is appraised at $100,000 but only owe $50,000 on their mortgage loan, they have around $50,000 of clear equity. Many people take out a second mortgage using the equity on their home as collateral.
While this helps them at the time, it may cause problems later if they can’t make their payments and the home goes into foreclosure. The first mortgage always takes precedence over the second in a foreclosure. Second mortgage will get what’s left after the first mortgage is satisfied. Many people understand the concept of what is meant by “first mortgage taking precedence over second mortgage”. If they have financial difficulties, they feel they can let their second mortgage fall behind as long as they keep up their first mortgage.
What they don’t realize is they can still lose their home through foreclosure. Second mortgage loans have the same legal rights as first mortgage. If you fall behind on your second mortgage, they can sell foreclose your home and sell it. The only difference is that the first mortgage company will get their money first and then the second mortgage will get what’s left.
Often is a situation like this the first mortgage company will offer to buy out the second mortgage or vice versa so there is only one mortgage. Whichever company buys out the loan comes out ahead because they now have only one mortgage.
You now understand the importance of paying both mortgages on time. A foreclosure of second mortgage can have the same ramifications as a first mortgage. You lose your home and good credit.