There are two terms: first mortgage and the second mortgage. First and second mortgages both have one thing in common; they both are loans, financed with your home as collateral. Based on their definitions the term first mortgage means actual loan you use to buy a house. Whereas the term second mortgage means home equity loan in terms of banks and lenders.
The basic purpose of having a first mortgage loan is to buy a house. It facilitates people in buying houses with convenience. There different options available for people to have first mortgage loan. Sometimes people buy house through loan schemes that require them to pay 20percent of the down payment at the spot. However there are also options for people who cannot afford to pay the 20 percent of down payment.
However there are few advantages and disadvantages attached to the availability of first mortgage option. The foremost positive point is that you get the place of your own and the second benefit is that first mortgage loan has lower interest rate as compared to the other unsecured loans. Thirdly the first mortgage loan is the tax deductible and it’s a good thing for the regular tax payers. Whereas the major disadvantage attached to the first mortgage loan is that your ownership is limited until you pay off the entire amount of loan with interest. In any case you fail to pay the loan; this may result into the termination of your ownership of the property.
In this type of mortgage the home owner doesn’t take a personal in fact it ties the loan to his property. Such sort of loans could be used for various purposes like to fund property renovation, business start ups or college expenses. This is like borrowing the money from the equity you have established in your property. The foremost benefit of this mortgage is that it has lower interest rate as compared to the unsecured loan. It is also tax deductible. However it adds installments to the payments of your first mortgage loan that you are already paying for your house.
We can elaborate the term second mortgage with a simple definition which explains it as a mortgage that is taken after a first mortgage. It is taken while keeping all the terms of the first mortgage in place and fulfilling them. It could be a home equity line of credit or a private mortgage and in either case the house of the property owner is kept as collateral. And in terms or payment the first mortgage loan is paid before the second mortgage. In case of second mortgage the amount received by the owner could not be invested in the property at all however it could be used to pay off high interest credit cards, signature loans, car loans or in place of such sort of debt.