Double mortgage

Discussion in 'Buying & Selling Real Estate' started by Gelsemium, Jun 11, 2014.

  1. Gelsemium

    Gelsemium Senior Investor

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    I think that one common thing to happen in the US is that many people have double mortgages on their homes. This is not common at my country and I don't even get, will they ever be able to pay those double mortgages?
     
  2. Leeroy_MY

    Leeroy_MY Well-Known Member

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    I've always thought that refinancing is better than taking 2nd mortgages.

    The reason 2nd mortgages are possible is because of the rising valuation of your house, but the thing is banks charge a much higher interest rate on the 2nd mortgage and you only get a very short payback period of about 4 years.

    Why not just refinance your house by replacing it with a new mortgage based on the higher valuation it has now achieved? That way, it would still be considered a 'first' mortgage with 6% interest with payback period up to 30 years.

    Not that I have any actual experience on refinancing or taking 2nd mortgages though. Anyone wants to clarify?
     
  3. JR Ewing

    JR Ewing Super Moderator Staff Member

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    I used to do these for other people. It depends upon many things, such as what interest rates were when you took out the first mortgage, what they are now, whether property values have gone up or even dropped, etc.

    If you bought your house and got a 4.25% fixed rate a decade ago, it would not have made sense to refi several years later when rates were much higher. Better to take out a small second mortgage if you need the money, and try to pay it off quickly. You can continue writing off the interest on the lower rate 1st mortgage (up to $1 mil), and also pay it off further down the road.

    But always think long and hard about taking on new debt and consider the risks. It's best to work towards eventually being debt free. It's a great feeling to know that everything you have is yours, and that you only have to worry about insurance, property taxes, automobile fuel and upkeep, utilities, and food, and can do as you wish with the rest of your money.
     
  4. Gelsemium

    Gelsemium Senior Investor

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    I agree, if we already have a mortgage it seems crazy to get a second one. I am paying my house for 15 years now and I still have another 15 left, so it's crazy, I would get another debt any time soon.
     
  5. Francy

    Francy Active Member

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    This has always been confusing to me too. I know some people that have taken out a second mortgage to pay off debt but it just seems that by doing that you get farther into debt. I'd be interested in finding out more information about it. I assume you have to have a decent amount of equity? Like maybe a certain percentage?
     
  6. JR Ewing

    JR Ewing Super Moderator Staff Member

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    They're probably harder to get than they were a decade or so ago. I used to work for a company that did mainly subprime debt-consolidation type deals on refis and 2nd mortgages. It should all come down to what option will cost you the least amount of money over time. Having to pay back debt and interest on debt costs money and can lead to ending up in the poor house if you ever find your income drying up for any length of time. Not something to take lightly.
     
  7. Gelsemium

    Gelsemium Senior Investor

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    I agree, when taking up credit I've always considered the interests I have to pay, so it's not something made lightly, but as a last resort. If we are desperate we just might consider anything though.
     
  8. wander_n_wonder

    wander_n_wonder Guest

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    I agree with refinancing. That's the best option. Double mortgages is very difficult to sustain and you will be eaten up by high interest rates the moment you miss a payment. It will end up to be a lot more expensive as well. Mortgages are always very tricky and each time you are availing of one, you really have to forecast the time that you will miss a payment and consider the option that will incur lesser late fees.
     
  9. Gelsemium

    Gelsemium Senior Investor

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    What do you mean by refinancing wander? How would that work?

    My bank now has a program that allows us to do a new loan with the same conditions of the first, so that the spread doesn't get affected.
     
  10. Investor

    Investor Well-Known Member

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    Nothing is bad in having one, two, three, or four mortgages affecting your property. As long as you understand well what you are doing or going to do with the money you get from the mortgage proceeds, you will be Okay-more than okay, when your property is going through the process of being mortgaged, you will first be assessed as to financial credibility, and you will not be able to qualify for a mortgage if you have no means of paying the money back to the Mortgagees, also, you will not be able to secure a mortgage if your property's value is less than the amount of the mortgage, in short, once you are able to qualify for two mortgages on a single property, ensure that the money is well spent.
     

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