What is a bad credit second (2nd) mortgage home loan?
A second mortgage is a home loan which is inferior to a superior mortgage loan against the same property. A home can have multiple loans against it. So whichever mortgage loan is registered first in the county records is called a first mortgage home loan and whatever is recorded second is called second mortgage home loan and so on. A bad credit second mortgage home loan is a loan given out to people with poor credit FICO scores or with a poor credit history.
Sometimes the term second mortgage loan is used synonymously with home equity loan or home equity line of credit. Even though there are a lot of similarities between them they are fundamentally different.
The reason why a second mortgage home loan is inferior to the first one is because in case of default, the first mortgage loan holder will get paid before the second mortgage loan holder. For this reason a second mortgage home loan is more risky for the lender then a first mortgage loan. Therefore, lenders will charge a higher interest rate for 2nd mortgage loans. So you can see why bad credit second mortgage loans are a lot more risky for a subprime lender. Not only the lender is exposed to high risk counterparty but also carries the the risk of of being in the second place in case of default.
Even though its rare for a home to have more than two mortgage loans against it, its not impossible. Whether a lender will like to make mortgage loan at the third or lower position will depend on how much risk the lender wants to take based on the interest rate they are charging.
Why does it makes sense for people to get a second mortgage loan when they have bad credit?
There are several reasons why bad credit people would like to get a second mortgage on their home:
- Get cash right now: A poor credit second mortgage gives people with bad credit cash now. This cash can be used for any purpose: home repairs, home improvement, finance a new car, money for vacation etc
- Reduce the interest payments from other loans: Since a bad credit second mortgage loan can be procured at a lower interest rate than a credit card loan or a car loan it makes sense to go for it. Instead of applying for a car loan or credit card loan just get a second mortgage and use that money for whatever. By getting a second mortgage people with poor credit can avoid high interest rate loans up to a certain limit.
- Debt Consolidation: People with bad credit may be behind on car loans, credit card loans, utility bills etc. By getting a bad credit second mortgage they are able to reduce their payments into one lump sum second mortgage payment at a lower interest rate instead of paying many small loan payments at a higher interest rate.
- Tax Advantages: Interests payment on poor credit home loans and second mortgages may be tax deductible. This is certainly not true with credit card and car loans. So people with bad credit can keep more money in their pocket by using this strategy. Sometimes this is just enough to move to a lower tax bracket....which can turn out to be a bonus.
- Credit Repair: The big three credit bureaus give you more credit for making second mortgage payments on time rather than making car loans and credit card loans on time. So the marginal increase in the credit score is more by making payment on second mortgages than other type of consumer loans. This speeds up the credit repair process for people who have poor credit history.
- Helpful during Bankruptcy or Foreclosure: During extreme situations of bankruptcy or foreclosure a little extra time can be a lot of time. This is exactly what a bad credit second mortgage can do. By procuring a second mortgage you may be able to buy some extra time to get back in life financial and avoid foreclosure or bankruptcy. This can save somebody credit from going from poor to worse.
It will not be possible to talk about each and every reason why people would like to get a bad credit second mortgage. In this article, we have tried to discuss the most common reasons why it makes sense to get a bad credit second mortgage loan for someone who is suffering from a poor credit history or bad FICO credit scores.
Our bad credit second mortgage loan company has been working with people for a long time with a successful track record. In fact, most of our company's clients have been rejected before by other other lenders and mortgage brokers. So if you have been rejected before do not feel like all your options are closed, our company may be able to help you.
Even with bad credit our company can get you a second mortgage home equity loan in less than 3 weeks. Fill out your information below to get started. |