The ins and outs of secondary mortgage
second mortgages commercial property. It is possible you are a maverick entrepreneur, or perhaps just an ordinary person with some property you are willing to risk for a loan. Either way, there is the option of finding a secondary mortgage on commercial property. Whenever you buy a major property, such as a home or a piece of land for agriculture, the loan obtained to purchase the property is secured by the property itself. That means if the loan cannot be paid, then the creditor may collect the purchased item. Since homes and land do not loose value, loans given for such things tend to be very secure. For the buyer, this means it is easier to obtain loans for such things. Such loans with collateral are called mortgages.
A secondary mortgage is a loan secured by a property that is already owned by the borrower. Such mortgages are much riskier for lenders than first mortgages because by law the first mortgage gets paid first in a foreclosure. For this reason, second mortgages often have higher interest rates than primary ones, although the interest is typically less than an unsecured loan.
For those of you inexperienced in legal jargon, a foreclosure is when a creditor decides they are sick and tired of not getting their money, and decide to recoup their loan by taking the property through the court. This means a legal battle, which can be expensive for both parties. Again, if the borrower owes a lot of money to a primary lender, then the primary lender collects first, leaving little or no money for the secondary lender. The secondary lender, rather than pouting, may try to go after other assets you may have. This is the most important thing to thing about, for both the borrower and lender.
Creditors, for this reason, may turn down a secondary mortgage. The first thing they look for is equity, meaning how much you have paid on the first loan. If you already own the property, all paid for, then the lender is as happy as can be. She may, however, look at how much other debt you have. If you have much more debt than you make in a year, then you are a risky investment. A high credit score and a stable source of income also play a role in the final decision.
What happens if you cannot pay the dough? Your remaining assets are liquidated by the judge when the creditors (in the plural) take you to court, and secured lenders get first dibs on your stuff. Your home goes, your car goes, bank account empty, stock sold, etc. You must file bankruptcy, not everyone gets their money, and your credit rating falls and burns like a poorly maintained passenger jet. Just remember before you gamble with other people’s money.