Several borrowers have a primary and secondary mortgage against their home. Now this as such is not a disqualification of any kind but when faced with a financial problem the two loans together can prove to be quite a nightmare. You might even consider not paying the second mortgage and wonder what is the worst they can do?
Nothing at a surface level but if you stop paying the second mortgage and the lender can’t threaten foreclosure because if the property is foreclosed upon everything will go towards the first loan and the lender will lose money, then also the debt remains, don’t assume that just because the lender can’t take any action you can afford not to pay.
In the earlier market scenario second mortgages were commonplace. Most people had a second mortgage against the first mortgage, but with the housing market going down and recession hitting the mortgage industry the worst, second mortgages are becoming less popular with the lenders. The lender often loses money when the borrower decides to default.
Earlier second mortgages were used to compensate for borrowers who could not make the initial down payment. So the second mortgage compensated for the twenty percent down payment.
It’s a well known fact that in the event there is a foreclosure on the account, the money recovered goes towards paying the first mortgage and usually this sum is less than the property value, for this reason the secondary mortgage lender often tends to end up with no money in his hand and is at a greater loss, but, for this very reason these mortgages have a higher rate of interest.
If you are decide not to pay the second mortgage because you feel, what can the lender do, the answer is a lot!
In the first place, you aren’t closing the possibility of foreclosure just deferring it. They may not be able to foreclose at the present moment but once either the housing market goes up or you have paid part of the primary mortgage, so that the house has some equity the second mortgage holder can be back with his threat of foreclosure or they can actually foreclose on your house.
Besides the fact that the threat of foreclosure is always looming large over your head, not paying a second mortgage will show up against your credit and a willful defaulter is not viewed as a great borrower.
Another thing is if you decide to default on your second mortgage you will accumulate late fees and charges which will further add up to the payment. In the event there is a foreclosure or a notice is issued to you, all this will be added to your payment. You will also start facing harassment from collection agencies and your reputation in your neighborhood will go for a toss.
There is also a possibility of the secondary mortgage lender purchasing the loan from the primary mortgage lender and then he might foreclose on you. Alternately if the primary lender comes to know you are defaulting on the second mortgage then he may decide to foreclose on you considering the fact that you might do the same with the primary mortgage or purchase the second mortgage from the secondary lender.
So it is advisable to always pay your loan and if you are facing a financial crunch inform your lender and in all events work with your lender.
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