What does it mean when people say they’re taking out a second mortgage to pay for something?

421 viewsEconomicsOther

I’m pretty young and I don’t know a lot about mortgages in the first place but how and why can you take a second mortgage on your house to gain a bunch of money? I hear people say it all the time in shows and movies and it sounds like a very bad thing.

In: Economics

7 Answers

Anonymous 0 Comments

Basically it’s just a loan but you are using your house and property as the collateral.

If you don’t pay the loan back they can take your home.

I used a second mortgage to pay for a new roof to my home and now it’s paid off.

They have a purpose but come with risk.

Anonymous 0 Comments

Let’s say you purchased a house for $300,000, put down $50,000, and the original mortgage is for $250,000.

You’ve paid off $50,000 of that balance, meaning you still owe $200,000 on the house.

The house is now worth $325,000 because it has been a while, and prices have gone up. You now owe $200,000 for a house that is worth $325,000.

There’s a problem, your roof is leaking and you need it fixed. It will cost you $25,000 for a new roof, but you don’t have that $25,000.

Since you have $125,000 in equity in your house, you can take out a loan against that equity – so you take out a loan for $25,000, but you still also have your original loan with a $200,000 balance.

The $25,000 loan is your second mortgage.

Anonymous 0 Comments

You are taking out a 2nd loan against your property. Rule of thumb is the 2nd mortgage and 1st mortgage, combined, usually cannot exceed 80% of the homes value. Say your home can appraise for $100k and you currently still owe $50k, assuming you qualify, you could take out a 2nd loan(mortgage) for up to $30k. You would then have a 2nd payment due every month on the 2nd loan on top of the first mortgage payment.

Anonymous 0 Comments

You buy a house for $200k and borrow $180k of that from the bank – that’s your first mortgage.

Five years later the house is worth $250k and you now only owe $160k on that mortgage.

You could then choose to borrow another, say $50k, from the bank as a ‘second mortgage’, meaning you now owe $210k on a house worth $250k.

It’s bad in that it puts you back further in debt. But if you really needed the money it would be the cheapest way of borrowing it.

Or if you were, say, using it for house improvements then it isn’t really setting you back as presumably the value of the improvements are reflected in a higher home valuation meaning your net position is about the same.

Anonymous 0 Comments

Yeah. Without going into much detail (see the other posts for reference) its actually easy:

You: i need 100.000$

Bank: Nahhhh

You: I got this house, worth 200.000$

Bank: Oh nice, heres 100.000$, you gotta pay us 1000$ a month until we got the 100.000$ + some extra back. If you fail to pay in time we just fucking take your house and sell it ;P

You (5 Years later): Dude sorry, i still owe you 60.000$ but i need a new fancy car

Bank: Sure dude, heres another 70.000$ (second mortgage) but now you pay us 1700$ dollar a month or we take your house

You: Wohooooo new fancy car

You after next month paycheck: Oh damn i only make 2100$ a month.. guess im fucked

Easy example why its used in movies as “bad call” most of the times….

Anonymous 0 Comments

I think when people say this in movies they are often making a joke. As in saying something is so expensive and unaffordable that they’d have to take out a second mortgage, or in other words borrow a massive amount of money, to pay for it.

Anonymous 0 Comments

Fundamentally, a mortgage is a loan where the collateral you offer up is real estate. Typically, the ‘first’ mortgage is for you buying the property.

But it is very possible that in time as you pay off your first mortgage you need another big wad of cash. If the property is now worth more than what is left on the first mortgage, you may be allowed to take a second mortgage on the same property for the difference in value.

But as emphasized, it is mostly used in media as a joke or literary device to say “X needs a big sum of money”.