Will 2nd Mortgage Rate Be Better or Worse?

When you are considering getting a second mortgage on your house, you may wonder about your 2nd mortgage rate. Will it be better or worse than the interest rate that you have on your first mortgage? In general, the answer is that 2nd mortgage rates will be higher than the rates on first mortgages- although they usually will still be lower than the rates on many other types of consumer debts such as credit cards.

Understanding the 2nd Mortgage Rate

Mortgage rates, for either first or second mortgages, are generally lower than the rates on credit card debt or personal loan debt. The reason for this is because the house acts as collateral and secures the loan. In other words, it gives the bank or lender some recourse. If you do not pay the bills on the loan, the bank has the ability to take the house and sell it to get their money back. This isn't the case with unsecured debt like credit cards- the bank can't, after all, come back and take the groceries you bought with your credit card and ate last week.

When you get a first and second mortgage:

• Both lenders have the ability to foreclose on the house and force a sale to get their money back.
• The first mortgage lender has first claim or "dibs" on the money from the sale of the house- the second mortgage holder gets what is left after the first mortgage holder is paid

Because the second mortgage holder only gets his cash after the first lender is paid, this makes second mortgage loans more risky for banks- and thus your interest rate is higher.

Getting Help

If you have questions or concerns about your 2nd mortgage and the rates or terms, you should have an experienced real estate attorney look over the loan documents. Your lawyer can make sure the rates and fees are fair and that you aren't signing up for a bad financial deal.