A second mortgage is a loan which is secured by mortgage to the title of a property behind another mortgage (known as the first mortgage). The second mortgage comes second to the first mortgage in priority, meaning that, in the event the mortgagor (the borrower) defaults and the property secured by the mortgage is sold, the second mortgagee will only receive payment if there are funds left over after the first mortgagee is paid.
While the popularity of a second mortgage saw a decline due to the first mortgagee meeting most of a borrower’s needs, the new loan-to-value ratios has restricted the bank’s ability to lend to investors and owner-occupiers alike, resulting in a second mortgage comeback.
A second mortgage is normally engaged as a short-term solution and is often used as a financial resource during a new business start-up, for a home owner who has fallen on short-term economic hardship, or for people nearing retirement who have been declined further borrowings from their bank. The costs associated with a second mortgage is higher than a (regular) first mortgage, meaning it is usually uneconomical to have a second mortgage over a long period of time.
Your first mortgagee will need to consent to the registration of the second mortgage on the title of your property. Registering the second mortgage without the consent of your first mortgage is a breach of your mortgagee’s terms and conditions.
A second mortgage isn’t the perfect fit for everyone so the choice shouldn’t be taken lightly. If you would like more information as to whether this is the right choice for you then contact us at Arnet Law.