What Is a 2nd Mortgage or 3rd Mortgage?
By Trevor Hickey

You may have heard the terms – 1st (first) mortgage, 2nd (second) mortgage, or 3rd (third) mortgage. These terms simply refer to the order of the mortgages on title. “Title” simply refers to the document that references who owns the property and who has a financial interest in it. So – if you buy a house and you get a mortgage to do so – that mortgage will be in 1st position.

Now – another valid question is why doesn’t everyone offer 2nd or 3rd mortgages (since they pay the investors more)? Well – you want to be the first mortgage holder (or at least 2nd) (“holder” means that you have leant the money and that you are the lender). The reason why you want to be the 1st (first) mortgage holder is simply because then you have priority if the property ever goes into foreclosure (“foreclosure” means you haven’t made your payments and that the lender(s) are taking the house and trying to sell it to get their money out of it). The reason why you want to be in 1st (first) position is because, when a property goes into foreclosure, you get paid first when it sells (this is huge). The reason why this is huge is because when you try and sell a house (as a lender/mortgage holder) you will likely try and sell it as fast as possible so that you can get your money back asap. And since you are trying to sell this thing fast – you will likely sell it for less than it’s worth and if you don’t have enough money to pay back all the loans that have been borrowed against it then those in 2nd and 3rd position may end up not getting how much they are owed – ie. if your 1st mortgage that you owe is $50,000 – your 2nd mortgage is $25,000 and your 3rd mortgage is $15,000 – then you owe a total of $90,000. If your house is worth $150,000 then there is lots of room to pay all these bills; however, since you tried to sell it asap and you could only sell it for $100,000 – then there is only $10,000 extra – now we can’t forget the lawyer and Realtor (who are needed to sell the thing – so they get paid 1st, and then the 1st, 2nd, and 3rd mortgages are paid. Seeing as Realtor and lawyer fees can easily get to be more than $10,000 – then the third mortgage (and possibly the 2nd mortgage) won’t get all their money back.

So – now you can see the dangers of being a 2nd or 3rd mortgage lender/holder. You may then ask – why doesn’t the 2nd or 3rd mortgage company just foreclose and then sell the property for what it’s worth and then get their money out too? Well – if you are a 2nd or 3rd mortgage lender, you have to pay the mortgage payments on the mortgages which are ahead of you (otherwise they may go into foreclosure too – and if they sell it before you then you could have just paid a bunch of legal fees and not been paid back when the house sells). So – the moral of the story is simply this – sometimes it does pay to get a more expensive 2nd or 3rd mortgage than to re-do your 1st (or 2nd) mortgage. Also – there is a lot of risk associated with holding a 2nd or 3rd mortgage – so, the rates and fees that they charge are often justified.

A good way to view how many mortgages you have is to think “if I won the lottery – how many mortgages would I have to pay out to own this house completely (and not owe anyone anything on it)?” You may then ask why you’d ever want a 2nd (second) mortgage or a 3rd (third) mortgage?

Trevor Hickey, B.A. is a Calgary Mortgage Associate with Concord Mortgage Group Ltd. in Calgary, Ab http://www.mortgagebrokercalgary.info trevor@concordmortgage.ca (403) 860-8738

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Financing Home Improvements with a Second or Third Mortgage
By Carrie Reeder

Financing home improvements with a second or third mortgage allows you to maintain or increase the value of your home. With home equity loans secured by your property’s value, mortgage rates are relatively low. In addition, tax laws also allow you to deduct second mortgage interest in some cases.

But before you sign for your new loan, make sure you are getting the right type of financing for your project. Also, take time to research lenders for low rates and fees.

Start With A Home Improvement Budget First

Before you look for financing for your home repairs or remodel projects, draw up a realistic budget with estimated cost overruns. This is the time to collect project quotes from at least three contractors. Or if you are planning to do the work yourself, price out materials and fees for rental equipment.

For projects less than $2000, take a look at a home equity line of credit. This type of financing usually has no application fees and low adjustable rates for the first couple of years. Lines of credit also give you flexibility in using your principal, so you only pay interest on what you borrow, when you borrow it.

If your projects are larger, a closed second or third mortgage will provide you with better rates over the long term. With a longer period to repay your loan, you are also likely to recoup the cost of closing fees with a low fixed rate.

Take Advantage Of Online Quotes

Once you have selected the type of financing you want, shop around rates and fees to determine the best deal. With online lenders, you can quickly investigate rates from their websites. You can even request custom quotes based on your credit score and financial assets.

When you allow financial companies to access your credit report, you have a 30 day grace period where repeated inquires don’t hurt your score. After that, your score will be temporarily lower. So only ask for quotes if you are serious about applying for financing.

Securing financing for your home improvement projects usually takes less than two weeks with most lending companies. With today’s online lenders, paying for your home’s renovations will be the easiest part of your project.

ABC Loan Guide has a list of free Home Equity Lenders Online, or more information regarding a 2nd Mortgage Online.

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Third Mortgage Loans – A Few Things to Know about 3rd Mortgages
By C.L. Haehl

Third mortgages are loans that are subordinate to the existing first and second mortgage loans. Though, third mortgages were common in the seventies and eighties, the savings and loan scandals changed the course of home mortgage loans.

Nowadays, it is rare to find home equity lenders offering third mortgages. You can find properties that have two to three mortgages or land contracts at the same time. Lien position is required mainly because in case of a foreclosure, the legal entities identify the mortgage lenders to be paid first, depending upon the lien position on title. There are a number of home equity lines considered to be third mortgages.

Similar to fixed rate third mortgages, it is difficult to locate a broker or a bank that would provide you with a secured line of credit in the third position. However, it might be possible provided you have equity in your home and you wish to leave your existing first and second mortgages out of refinance. Only then you can get cash through the third mortgage credit line. Third mortgage loans have a number of benefits. They offer a number of options, debt consolidation loans, third mortgage refinance, third mortgage lines of credit and more.

You can enhance or at least maintain the value of your home by financing home improvements with a third mortgage. The mortgage rates are generally low when secured by home equity loans. Moreover, tax laws allow you to subtract the second mortgage interest in certain cases. You should also research properly the lenders, to find low rates and fees. Before searching for financing for your home repairs or remodeling projects, always draw up a realistic budget along with the estimated cost overruns. Once you finalize the type of financing you need, shop around for the rates and fees and identify the best possible deal.

Recommended Second Mortgage Companies Online – We maintain a list of recommended mortgage companies online and update the list regularly.

Bad Credit? See a List of Poor Credit Mortgage Companies Online

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The original mortgage was granted through one loan company but over the years, it has been sold off to other companies. The note is now held by a third mortgage company. In the beginning much of the monthly payment went towards the interest but now most of it is going towards the principle. The mortgage will be paid off in 6 months which is earlier than negotiated. Because all the interest was paid in the beginning, we have essentially overpaid the interest and should be getting a credit. So who owes us the credit? Is it the mortgage company that collected the payments initially or is it the current mortgage company because they have assumed all responsibility for the note when they purchased it from the other company? Can you please also send me a link to some documentation that will support your answer? Thanks!
I think there may be some confusion about where the "credit" is coming from. The mortgage for the full term (as negotiated) was paid upfront but we are paying it off early so we pre-paid more interest than what we actually had to owe.
Sorry I meant to say the interest for the negotiated term of the mortgage was paid upfront so we prepaid more interest than we should have to owe.
Let me just add something- there is no question about whether or not there is a credit. The bank has already said there is. We are trying to establish who actually owes it- Company 1, 2 or 3.

If you don’t understand mortgages, please don’t answer. I am looking for serious answers.

No link. THE last owner of the note is responsble. They "bought" the note and the outstanding obligation no matter if you overpaid or skip out and default; they are equally in possession and responsible.

It’s STILL the lender who currently holds the note under the same terms and conditions as the original lender.

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I think it has everything to do with it. "Keeping up with the Joneses" has flung this nation into debt. We don’t need a new car every three years, a new 52 inch flat screen plasma TV, and bigger homes every five years. If you can’t pay for it all, no big deal. Take out a second or third mortgage and get 15 credit cards.

Of course no one in the national media will tell you this because they are in the pocket of corporate America through advertising. Wake up and smell the coffee America…Materialism "WILL" lead us into another depression.

Just look at one aspect of the problem. The housing market. People bought bigger houses than they could afford. They paid "interest only" on the loans. That means the principal, or original amount owed never went down, never got paid off. People can pay interest only for so long, when the balance came due–trouble hit. Look at all the two story houses being built. If you can afford to pay for it, fine. But for the average family a three bedroom, two bath basic house is sufficient.

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Has anyone ever heard of a third mortgage? Is it hard to get one?

Yes, 3rd mortgages/helocs are hard to get today, contrary to what the first responder wrote. With default rates up and market appreciation down, lenders are tightening their purse strings

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Okay. I live in a house worth $400k, and have a mortgage for $200 on it. I own second residence worth $210k, and have a mortgage for about $150k of that. I have about $500k in investments. I’d like to buy a rental property but my financial advisor doesn’t want me to pay cash. He wants me to put down a downpayment and get a mortgage for the rest.

Can I get a third mortgage? Oh, the house I’m looking to buy is about $250. I’m assuming I can, but I am wondering if I shouldn’t be assuming so much.

Thanks for the help!

Sure, if the income and ratios work out. You can get 8 seperate mortgages and then things get a bit trickier (and fannie/ freddie don’t like you to have more, you’ve got to start combining 2 properties for one mortgage or get other financing or such). Bear in mind you will pay a higher rate for an investment property and as you get more mortgages your ratios will probably get worse and worse making it that much harder to get teh next mortgage, but lots of investors have 3 or more mortgages.

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Hello everyone. I had a question. I haven’t visited a mortgage lender yet because I was just thinking of this recently. I have two houses that I pay mortgages on. My primary home which I live in, and I have a second home that is occupied by tenants. My question is, with all the forclosures out there I was considering a third. Would I be able to get that third mortgage to buy a home for investment purposes? I’ve never been late on a payment and also can afford three mortgages if I can’t find a renter to occupy it. I just ask because I heard due to the defaults on mortgage payments, that it is extremely difficult now to get a mortgage loan.

You’re a safe borrower so a third mortgage would not be a problem, especially as your income from rent will likely be more than the mortgage payment.
The credit crunch is affecting borrowers who pose a risk to lenders – but if you have good credit then you’re fine. The financial institutions still have to make money so they have to lend it!!

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