What to do When Struggling to Make Payments for a Second Mortgage

It is common for homeowners to have two mortgages, with one lender shouldering most of the loan as compared to another. If you are struggling to make payments for your primary mortgage, how much more difficult would it be to pay off your second mortgage loan? 

For most people who have two mortgages, they actually consider not paying their second mortgage. How would this affect your finances? That is exactly what we will try to discover here. 

First, let’s look at the reasons why homeowners take on a second mortgage in the first place. Basically, it’s literally a second mortgage – a loan which is borrowed against the value of your home.  

In the event that you default on your home loan, it is the first mortgage which would be paid off first before any other funds go towards the second mortgage. The division between your first and second mortgage is usually on an 80/20 percent basis. 

This is a relatively common financial option taken by homeowners who would like to gain access to some extra cash. If you’re looking for money that you will allot for a home improvement project, debt consolidation, purchasing of additional homes, avoiding private mortgage insurance or creating a home equity line of credit – a second mortgage is definitely for you. 

What Happens If You Fail to Pay Off Your Second Mortgage 

If you are a homeowner who is facing serious financial difficulties, can you actually get away with not paying your second mortgage? Although it is true that the second mortgage lender is in a subordinate position to the primary lender, it does not mean that they cannot take action against you as a borrower if you fail to pay off your second mortgage. 

To have a deeper understanding of what exactly will happen, here’s a quick look at the risks that a second mortgage lender takes: - In the event of a foreclosure, it is the primary mortgage lender that would be paid off first. - Second mortgage lenders are ‘forced’ to apply a higher interest rate because they do handle a higher risk as compared to the primary mortgage lender. 

Should a homeowner refuse to pay off the second mortgage lender and prioritize the primary mortgage in the event of a foreclosure – it is simply delaying the inevitable. Let’s say that you already settled a deal with the primary mortgage lender and the foreclosure was put off. 

Once your primary mortgage is paid enough to get some equity on the property and you did not pay anything on your second mortgage, the lender will be the one to foreclose your home. 

Not paying off your second mortgage would also negatively affect your credit, not to mention the piles of additional charges and late fees that you will incur. 

Looking for a Solution 

So what are you supposed to do if you would like to prioritize your primary mortgage loan – but there’s still your second mortgage that you need to deal with? Some of your options include loan modification. You can specifically apply for the Home Affordable Modification Plan. Freddie Mac and Fannie Mae are now supporting refinancing of up to 125% of your current home value under HAMP, so it’s definitely something that you need to check if you qualify for. 

You can use not paying your second mortgage as a last solution if the lender refuses to give you a loan modification plan or a refinancing plan. For this, you should seek legal assistance to make sure that everything is in proper order. 

Article Tags: Second Mortgage Lender, Second Mortgage, Mortgage Lender, Primary Mortgage

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