Effects of Having a Multiple Mortgages Loan

When most people buy a house, they take one mortgage out on their home. Ideally, they put down 20 percent of the value of the home in cash and the bank lends them the money to pay for the other 80 percent of the house. They have one mortgage and they pay off that once mortgage and the home is theirs. However, things don't always happen this way- sometimes there are multiple mortgages loan that people take out. For example, if you don't have a 20 percent down payment, you may take an 80 percent first mortgage and a 20 percent second mortgage (called an 80-20 loan) in order to avoid having to pay something called private mortgage insurance (PMI) which is assessed if you borrow more than 80 percent from a single lender. On the other hand, you may take a second mortgage loan later on after owning your home for a while, either to pay off debts or do home improvement projects or otherwise get ahold of some cash. If this happens to you and you have multiple mortgages on your house, what are the affects?

Effects of Multiple Mortgages

There are a few risks or potentially negative effects of having multiple mortgages on your house:

• If you can't make your payments, either lender can foreclose. In other words, any lender who holds a mortgage on your home can get a judgment of foreclosure and take that house from you if you fall behind on your payments. Proceeds from a foreclosure sale are paid first to the lender who holds your first mortgage, and then to any subsequent lenders- you get nothing, unless there's something left over after all your creditors have been paid.
• You have a better chance of becoming upside down, or owing more than you owe, on the house. If you take out all of your equity (cash) in the house and property values fall, you could end up owing more than the buyers will pay for your house on the market- rendering you unable to sell.

Getting Help

If you are considering taking out multiple mortgages on your house, consult with an experienced real estate attorney. He can explain the consequences of your decision and can help you make sure any loan you do take has fair terms.