What is a junior mortgage?
Junior mortgage, also called the second mortgage, is a type of loan that has a lower lien priority than a previous loan or lien. This second mortgage is granted after approval of the primary mortgage loan. Given that the original loan is recorded by a junior mortgage, it is considered lower than the first loan. Like the first mortgage loan, the junior mortgage is provided by the value of the house as collateral.
Many debtors seek to secure junior mortgages in order to obtain an additional backup or to closing the costs of costs. In this situation, the junior mortgage is granted almost at the same time as the primary mortgage. Some creditors prefer to avoid this type of junior mortgage because the debtor usually has small or no capital in the household. However, other creditors are willing to grant junior mortgages in such cases, especially if the debtor has a very good credit or meets other criteria.
Another reason why wouldthe debtor could seek the junior mortgage access to his domestic capital. Disposed capital is often used for domestic improvements, a dream holiday or a family member with a university tuition costs. However, this money can be used in any way that the debtor considers appropriate.
In order to obtain a junior mortgage, the debtor must meet the creditor's requirements. The debtor must be able to prove his ability to repay the junior mortgage except the original loan. When considering the debtor's application, the creditor reviews the credit history and score of the debtor, the history of employment, income, debts and many other factors. The fact that the debtor was able to obtain the first mortgage does not necessarily mean that he will be able to secure a junior mortgage.
Mortgage junior usually bear higher interest rates and shorter loan conditions than the first mortgage. Higher rate means larger monthly plAtby and increase the total cost of a loan. However, junior mortgages are often less expensive than unsecured loans.
Since the junior mortgage has a secondary priority to the primary mortgage, the creditor has a better chance of losing money if the debtor fails on the loan. In principle, the secondary creditor is not entitled to any part of the decree from the sale of the house until the first creditor is fully repaid. This higher level of risk causes many creditors to be cautious in granting junior mortgages.