Another mortgage is an additional mortgage on the property that is extended to the owner when the property is already carrying a first mortgage. Other mortgage loans are often extended with the same lender having delivered the first mortgage. However, another mortgage can be obtained from another lender. In the event that the borrower does not meet the payment schedule for both mortgages, the lender who has the primary mortgage will receive payment from the foreclosure and sale of the property first. The other mortgage holder can then claim any remaining proceeds.
Another Loan is a New Loan
When a homeowner chooses to hire another mortgage, the lender will typically consider the current circulating amount of the first mortgage, the current market value of the property, and the credit rating of the applicant. After evaluating these factors, the lender will notify the borrower of the amount of funds that can be secured with another mortgage. This figure may be more or less than the borrower hopes to get from the transaction. Once the lender has notified the homeowner of the loan involved, and the interest rate to apply, he or she may decide to proceed with the application.
In most cases, another mortgage will carry a higher interest rate than a first mortgage. This is due to the fact that the lender is incurring a higher degree of risk even when the financial situation of the homeowner is very stable. The increased risk to the lender does not indicate a lack of creditworthiness of the applicant. However, the interest rate recognizes that in the event of default, the other mortgage holder will be unable to claim money from the sale of the property until the first mortgage was settled.
Along with the higher interest rate, another mortgage is usually written for a shorter period than first mortgage loans. Often, the second loan on the property is taken out to make repairs or improvements to the property, and it is substantially less than the amount of the first mortgage. Under these circumstances, the homeowner is expected to repay the amount of the mortgage plus current interest within a shorter period.