What is meant by 2nd, 3rd mortgage etc? - Posted by Rocker Fella

Posted by Paul on May 11, 2000 at 14:36:04:

The 1st, 2nd, 3rd, etc., refers to the chronological order in which the mortgage is officially recorded. The mortgage doesn’t actually say “1st” or “2nd” on the document. The 1st mortgage holder has first rights to proceeds from a foreclosure and has the least risk. So as you go down the food chain, 2nd mortgages generally have higher interest rates than 1st, etc. There are often benefits to getting 2nd or 3rd mortgages rather than refinancing and having one 1st mortgage. For example - if you have a 1st mortgage that has a really low rate (as I do with my own home 5.75% for 15 years), you’d be better off getting a 2nd even with a higher rate.

Hope that helps.

What is meant by 2nd, 3rd mortgage etc? - Posted by Rocker Fella

Posted by Rocker Fella on May 11, 2000 at 14:19:54:

I understand 1st mortgage which is basicaly the loan for your house, but what is the purpose or reasoning of a 2nd 3rd or 4th mortgage? Does it mean you are paying 2 or 3 different banks a separate mortgage/loan? To do that sounds very inconvenient because you wouild be writing checks out your wazoo each month instead of just one. Can someone explain this?

Re: What is meant by 2nd, 3rd mortgage etc? - Posted by Ben (FL)

Posted by Ben (FL) on May 11, 2000 at 14:47:22:

If writing only 2 or 3 checks to different banks each month is “writing checks out the wazoo,” then my wazoo spews checks like wood chipper at the begining of each month.

Typically, if you’ve got some equity in your home, and you need some cash, you can get a home equity loan in the amount of some or all of that equity. To secure the loan, the lender will hold a second mortgage on the house. If you default, they can foreclose. Then they will own the house, but still have to make payments on the first mortgage.

If after getting the equity loan, you still need cash and have remaining equity, you could get another loan that would then be secured by a third mortgage.

Basically, you get 2nds and 3rds when you need cash. You can get a better interest rate than a “hard money” lender because the loan is secured by actual equity. If you default on an 18% “hard money” loan, all they can do is get a judgement against you and trash your credit. If you default on a 9% to 12% 2nd or 3rd mortgage, the lender can get your house.

Hope this helps. Now I need to sit…Nope, better not.

Re: What is meant by 2nd, 3rd mortgage etc? - Posted by Jim IL

Posted by Jim IL on May 11, 2000 at 14:36:07:

Rocker Fella,
The reasoning behind getting a second, third or even fourth mortgage on a home is really something you’d have to ask the home owner.
But, to answer the second part of your post, the numbers after these, “First mortgage”, “Second mortgage” etc. are simply the order in which the liens were recorded.
Yes, it usually means that the home owner is writing checks every month to pay off different loans, all secured by the home.
The only time the checks would be made to the same lender, would be when the same lender makes the seperate loans. However, there will still be different checks made out for each payment on each individual loan.
Hope that helps clear up your confusion,
Jim IL