The silent second mortgage is one type of mortgage that isn’t so common among people. As the name implies it is still a secret to individuals.
I suppose you’ve found out about the silent second mortgage which is why you’re here to see for yourself all you need to know about a silent second mortgage. An in this article you would learn all you need to know about the silent second mortgage and how it works.
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What is a Silent Second Mortgage?
A silent second mortgage which is also called a soft second or subordinate mortgage is the act of borrowers taking out a separate loan to help with the expenses of attaining a major mortgage for real estate. There are both legal and illegal ways in obtaining a silent second mortgage.
What is a Legal and Illegal Second Mortgage and How Does it Work?
Legal silent second mortgages are usually a governmental policy that assists homeowners with down payment costs. They may have a 0% interest rate or a low-interest rate and naturally have a different payment plan.
Even though the second mortgage is documented, the homeowner isn’t expected to pay for it except they sell the home, refinance the mortgage, or rent it out.
The illegal part of the silent second mortgage is when a buyer who is expected to provide a down payment when intending to buy a house keeps details of the silent second mortgage from the lender.
The details of the second mortgage could be discovered by the lender and there is also a possibility that he or she might not be able to discover it. The implications that come with the borrower not giving details of the second mortgage and using the mortgage to pay up the down payment could result in fraudulent or illegal activities at the expense of your security.
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Basic Facts About the Silent Second Mortgage
Below are things you ought to know about the silent second mortgage:
A Lump Sum
The second mortgage provides a lump sum of income that you can use for anything you wish you want to have it for. The lump-sum helps to pay up your loan little by little over time usually with fixed monthly payments.
Line of Credit
They can come like a line of credit or a money pool that you can be able to draw from. In this situation, it is expected that you do not take out money unless you want to at the set amount given by your lender. After that, you won’t be able to take out money anymore.
Loan Amount
Second mortgages allow you to borrow up to 85% of your home’s worth because the loan is already covered by your home even without collateral.
Interest Rate
Second mortgages usually have a lesser amount of interest compared to other debts because the loans are of lower risk, lenders often give lesser rates on second mortgages than any other personal loans.
Tax Benefits
The tax benefits that with the second mortgage are that you can take out an interest deduction of your mortgage for an already paid interest on your second mortgage. It is important you know know the required methods required hence you need to make inquiries from your taxpayer before the deductions.
Risk Foreclosure
The second mortgage maskings about putting your home on the line when you stop meeting up with your down payments. And upon investigation, If your lender can discover about the second mortgage, he or she would not just seize your home but also charged you for fraud which is not a good experience anyone wants to undergo.
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Loan Cost
The second mortgage can be equally expensive when needing to pay up for countless things such as credit checks, appraisals, origination fees, and more. The closing cost adds up to thousands of dollars without you observing it because it isn’t noticeable.
Interest Cost
You ought to know that interest is mandatory when paying up your debts or loan. Second mortgage interest rates are often lesser than credit card interest rates, but a little higher than your first loan’s rate.
Home Improvement
Renovations of your home could be made with your second mortgage funds as it is assumed repayment of your will be made after you sell your home on a higher amount.
Consolidation of Debts
It is a norm to get lesser rates with a second mortgage. Though you are at risk of moving from an unsecured loan that might cost you your home.
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Education
To avoid cases of foreclosures by your lender, a student loan could one of the best choices you should make. Although you might get yourself up for a higher income, you have to note that you are setting yourself up as you are likely to encounter foreclosure.
Elimination of Your Second Mortgage
There are just a few options you have in eliminating your second mortgage. On the closure of your line of credit, you are given an opportunity to terminate the transaction without paying dearly for it. Another way out Is paying off your debts, refinancing your second mortgage to your first mortgage or declaring bankruptcy.
Down Payment Assistance
In the intention of you purchasing a home and you do not have the required amount to pay, you can make use of a large number of down payment programs available as you are not expected to pay instantly which would help you save up for some money you could use for other things.
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Conclusion
Before venturing into a silent second mortgage be sure you are up to the task of facing the implications that comes with it. Although it is an easy root to get a home for yourself, you ought to know that it comes with a high cost that is capable of tarnishing your image when caught.
I hope this article was insightful to you just as it is to me. We would love to hear your thoughts on this article. You can do so by commenting below, like and sharing this article with friends and family.
