CNC Mortgage Blog

As mortgage brokers, we still see sufficient credit available for first mortgages, even up to 95% and 97% of the value of the home. One market that has been affected is the availability of second mortgages. Fewer banks are offering second mortgages as fixed rate seconds or as variable home equity lines of credit. Three years ago banks offered second mortgages up to 100% of the value of the home, now it is difficult to find a loan for over 85% of the property. Some of our banks will go to 90% depending on the customers strengths and compensating factors.

A second mortgage is a loan secured by a real property. Typically properties are bought with a loan that has a first lien. A first lien means that in case the borrower defaults on his payments the first lien holder will be paid first. Money that is left over after the foreclosed house is sold are first applied to the first mortgage and then to the second mortgage.

Mortgage Insurance (MI) is not required if the first mortgage on a property is less than 80% of the value. MI is paid monthly as an additional payment to the interest and the principal. It protects the lender if the borrower stops making his payments. One way to avoid MI is to get a second mortgage for the amount over the 80%. For example, if a person was buying a property for $200,000 and putting 10% down they would put $20,000 as down payment and get a second mortgage for 10% or $20,000 and a first mortgage loan for $160,000 without MI. Otherwise they would have a loan for $180,000 with MI.

There are several kinds of second mortgages.

Piggy back loans: when the same bank provides the first and the second mortgage, usually on a purchase.

Stand alone seconds: when a bank provides a second mortgage to a borrower and that bank is unrelated to the bank that provides the first mortgage. This could be on a purchase or a refinance.

Helocs: stands for Home Equity Line of Credit. This is also a loan that places a lien on the property. The amount is variable so the borrower can take money out of the account and return it at any time. The customer only pays interest on the money he is using.

Fixed rate second mortgages: These can be piggy back or standalones. The borrower receives a loan and commits to pay it back in fixed monthly installments during the terms of the loan. A frequently used term is called a 30/15 loan. This means that the payments on the loan are based on a 30 year amortization but the loan is only extended for 15 years. At the end of the 15 year period the person must pay the bank the balance that is owed at that time.

Balloon payment: This is a payment that is due on a loan when there is still an outstanding balance. If the terms on a loan were a 30/15 loan, the balance of the loan that is due in year 15 balloons or is due in year 15 even if the payments have been calculated to extend the loan for 30 years.