Average interest Rate on second MortgageThe average interest rate for the second mortgage.
The second mortgage rate is usually higher than the first mortgage rate for various different purposes. This is mainly because a second mortgage is subordinated to the first mortgage, which means that there is more exposure for the second mortgagegiver. The first mortgage has precedence if the debtor has to fail on the house, if the house goes into execution.
In the end the second mortgage bank may not receive any or all of their mortgage returns after the house is sells in foreclosure, so they help to balance this exposure by levying a higher interest rate. The majority of first mortgage deals are for sale by the original borrower to a purchaser in the aftermarket, and many second mortgage deals will also be for sale.
For those who decide to keep ownership of their second mortgage instead of packing it for sell on the aftermarket, a higher interest rate is charged to cover the costs of maintaining the home mortgage. Not only does the higher interest rate help to balance the second pledge but also the extra exposure from not having sold the credit to another counterparty.
Also, the creditor has the right to sell the second mortgage later if they are able to find a buyer who is willing to buy the mortgage. However, if the other party decides to check the borrower's credit standing and repayment capacity, it may not purchase the credit if there have been changes that result in the borrowing posing a high level of exposure.
As most second mortgage loans have a maturity of less than a first mortgage, the amount of financing costs disbursed by the borrowers is lower. Second mortgage bank calculates a higher interest rate to help increase its return on the mortgage. Even if the second mortgage is a variable rate mortgage or ARM, the creditor is not able to exactly determine the amount of interest he will earn.
The reason for this is that the rate at each set point can go either up or down. The second mortgage used for a house in need of repairs may indicate that there will be more trouble later as the house ages. A second mortgage provider can partly compensate for this potential exposure with a higher interest rate.
When the second mortgage is just interest or is a ballon mortgage, the creditor must seize the opportunity that he will not be able to recover all his income, should the borrowers pecuniary position be changed when the moment for refinancing the mortgage has come.