Having a second mortgage that is not prepaid for the year or agreed upon term can be daunting if you are not good with managing your money. You will want to avoid any chance of missing payments of mortgage default as the penalties and interest does add up fast and can prove to be very expensive.
There is some misinformation out there about the payment of your second mortgage only occurring after you have paid your first mortgage payment and that the second mortgage holder can wait for their payment. This is far from the truth and result in you going into foreclosure if you do not address the default. You are required to make both your first mortgage and second loan payments on time as agreed to when you signed your mortgage contract. If you default on either mortgage payment, the lender can commence action to recover funds owed.
Usually this is when the third payment has been missed, but in other instances a second missed mortgage payment can result in a lender taking action and having their legal department intervening. The next steps are usually you will receive a letter in the mail demanding payment of the second mortgage arrears.
Therefore, you should try to stay on top of your monthly mortgage payment schedule. If you are falling behind and find your mortgage payment to be too much of a burden, you should contact a qualified mortgage broker to discuss your circumstances. If your rate and payments are too high, a mortgage agent should be able to asses your options and give you tips are to what to do going forward. Sometimes selling ones home will make sense in the long run.
It should boil down to cash flow and your ability to manage your personal finances. 2nd mortgages can be a great tool to wipe out excessive high debt and rebuild your credit rating if you do it the right way to start off. Using the funds frivolously will only lead to greater unsecured debt going forward.
Qualifying for a lower rate in any respect will require a good credit score and should be focus of most lenders who want to borrow or purchase a home. Make sure your credit report is accurate and that there are no contested or open derogatory items on your report that could bring your score down.
Make sure to have all of your mortgage payments made on time without any late days so as to avoid fees or administrative charges from the lender. In certain cases if the lender loses faith in your ability to repay, they can in some cases recall the loan as they may feel you are a unnecessary risk and will push for you to pay them out immediately at term end.
In many cases high monthly bills are a result of poor planning and can result in an insurmountable monthly payment. This is where debt consolidation comes into play and where a second loan on your property can be helpful. Some people have refinanced their mortgage to get out extra equity and payoff their debt thereby negating the need for a second mortgage altogether. This is a calculation that you will need to do to see the potential cost savings going forward.
Credit cards can be a useful tool and helpful when purchasing day to day items. It makes sense to then pay off your balance each month and not carry a balance on any credit card that results in you making the bare minimum monthly payment. Many folks who do carry a balance indefinitely find themselves in a dire strait after some time and would benefit from a home equity loan
As previously mentioned, considering a mortgage refinance may also work well if the numbers jive and you can get out of the term without a hefty penalty. Some people see penalties as high as tens of thousands of dollars when they are looking to break their mortgage term. This is where a second mortgage loan may come in handy and allow for you to stagger the maturity date with the existing first mortgage.
Another technique is where you can try to have your current lender blend and extend your mortgage term without any sort of refinance. This is useful if you have high payments and are looking at some potential savings. Many find though that if they need additional funds or a mortgage refinance, this technique is useless to them.
When it comes to your mortgage being at risk for default, it always makes sense to talk to a mortgage broker or agent who can explore all of your options in a professional manner. Your lender may get spooked and may even call in your loan if they feel you are a risk and could result in you having to find a new mortgagee altogether.