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11. Second mortgages
Second mortgages are mortgages on a property that are less secure for the
lenders than the primary mortgage. The lender of a primary mortgage is the first one to
collect their money in the event of default and foreclosure. The lender holding the second
mortgage note gets to collect only if the primary note holder gets their money. Because
the risk of loss is greater for a second mortgage holder, the mortgage interest rate on
the second mortgage will be higher. The closer the total of the first and second mortgages
approaches the appraised value of the property, the higher the second mortgage interest
rate will be. The interest rate on a second mortgage will be greater than that of the
primary mortgage because of the second mortgage lenders greater risk exposure.
Second mortgages are normally taken out for a fixed amount and fixed period of
time, like ten or fifteen years, unlike home equity credit lines which are usually
revolving credit accounts.
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