Obtaining a remortgage or second mortgage usually refers to a secured loan or mortgage that is subordinate to another mortgage against the same property.
In real estate, a property can have multiple loans or liens against it. The loan registered with the local county or city registry first is called the first mortgage or first position trust deed. The lien registered second is called the second mortgage, naturally. A property can have third or even fourth mortgages, but those are relatively uncommon.
Second mortgages are called subordinate because, if the loan goes into default, the first mortgage must be paid off before the second mortgage. Therefore, second mortgages are considered riskier for lenders and generally come with a higher interest rate than first mortgages.
In most cases, a remortgage takes the form of a home equity loan and the two are considered the same thing, from a financial standpoint. The difference in wording is that a mortgage traditionally refers to the legal lien instrument, rather than to the debt itself.
The term of length of a second mortgage differs widely. Terms can last up to twenty years on second mortgages; however repayment may be required in as little as a year depending on the loan structure.
A second mortgage or remortgage can occasionally lead to foreclosure when a homeowner defaults on their loan. The second lien holder then purchases the primary mortgage (which can still be in good standing) and then forecloses, which leaves the homeowner losing their home to the 2nd mortgage lender.
Generally, when considering an application for a second mortgage, lenders will look for the following:
* Whether there is significant equity in the first mortgage.
* Amount of debt-to-income ratio.
* Borrower's credit score
* Borrower's employment history