What are Second Mortgage Lenders?

Second mortgage lenders are banks and other financial institutions that offer second mortgages. A second mortgage is a second loan taken on a property for which a borrower already has a mortgage. This means a borrower secures two mortgage loans for the same property instead of the typical single mortgage.

When a person secures a second mortgage, his home is used for collateral on the loan. If the borrower defaults on his mortgages, the lender can recover its money via the foreclosure and sale of the property. Second mortgages require lenders to accept a higher level of risk, however. This is because the first mortgage is repaid first in a foreclosure or default situation, and the money left over after that may not be enough to repay the second mortgage lender. For this reasons, many second mortgage lenders grant these loans at higher rates than with typical first mortgage loans.

A second mortgage lender typically offers a loan based on the amount of equity, or ownership, a person has in the property. For example, a person may owe $70,000 US Dollars (USD) on a home with a market value of $150,000 USD. In such a case, the $80,000 USD above the amount the borrower owes would be considered his equity in the property. A second mortgage lender might be willing to grant the borrower a loan using that equity as collateral.

An individual who seeks a second mortgage may have a number of options to consider. Many individuals obtain these loans from the banks that granted their first mortgages. Others may research and compare second mortgage lenders, attempting to choose the lender that offers the most attractive loan terms and rates. Each second mortgage lender may set its own requirements for successful loan candidates. Lenders may consider the amount of equity a person has in his home, his credit rating, and the market value of the property before granting second mortgages.

Second mortgage lenders do not place any stipulations on how a borrower can use the money he receives from a second mortgage loan. Some people use these loans to fund large expenses, such as dream vacations, weddings, or even college tuition for their children. Others may use second mortgage funds to pay for home renovations, repay other debts, or even handle emergency medical expenses. A second mortgage lender may grant this type of loan as a lump-sum payment, loaning a borrower a particular sum all at one time. In other cases, the borrower may prefer a line of credit, which allows him to borrow or withdraw funds as he needs them.