By taking out a second mortgage on their home, borrowers can turn existing equity into cash to consolidate debt, fund home improvement projects, contribute to an investment home purchase, or build a secondary unit.
The second mortgage also offers owners creative solutions to financial problems. We have seen second mortgages (also called “second liens“) used to pay down first mortgages and eliminate mortgage insurance. We have seen owners use a second mortgage to keep a desirable first lien intact while cashing out equity to use for other purposes, such as college tuition.
Central Coast Lending is able to lend on an assortment of second lien situations, which can help borrowers consolidate debt, fund home renovations, or take out a new line of credit. Give us a call at 805.543.LOAN or an email with any questions.
Pay down first mortgages and eliminate mortgage insurance
Turn existing equity into cash to consolidate debt
Fund home renovations
Contribute to an investment home purchase
The two main components of any home loan are the “promissory note” and the “deed of trust.”
The promissory note is essentially a contract that contains a pledge to repay the loan amount and the terms for repayment (which includes interest rate, loan term, loan amount, etc).
The deed of trust – also called a “mortgage” or “lien” – states that the home may be used as “collateral” for repayment of the loan; in the event of payment default, the lender is able to foreclose on the property, sell it, and retain the proceeds to satisfy the debt in question.
Every lien has a “position” or “priority.” All home loans have at least one position – “first position.” The lender in first position gets the first crack at recouping its losses in the event of payment default.
It is possible for borrowers to take out additional liens (mortgages) on a home. All subsequent liens are “subordinate“, which means that the lender in secondary position must wait to be made whole until after the first is finished. You might also see this referred to as a “second lien“, a “second mortgage“, or a loan in “junior position.”
The HELOC is a revolving line of credit that allows homeowners to turn home equity into cash for ready use. Some of the best uses of a HELOC allow borrowers to free up cash for debt consolidation (credit cards, car, student loans) and home improvements.
Subordinate financing can be structured in two ways:
1) The Piggy-Back (a.k.a.: Concurrent Lien, First and Second Combo)
Borrowers purchasing a home, are able to use a “piggy-back” their first mortgage in with a second mortgage to give them additional flexibility in the formation of their repayment plan.
2) The Standalone Second
Borrowers can also take out a second lien independent from the first. In doing so, the borrower can take cash out of their equity to use for other purposes while preserving their first lien.
The closed-end second lien sets a fixed interest rate and a specific payment schedule. This format offers security for borrowers with a plan that they can reliably execute.
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