Second Mortgage DefaultThe second mortgage loss
Effects of a second mortgage default
Delay is good for drama performances at coctail parties, but the benefits end there. If you get to work too late, you could get sacked. If you fall behind with your second mortgage repayments, you run the risk to lose your home. A second mortgage lender can take measures against you as soon as your mortgage is in arrears.
If you do not fulfil the conditions of your credit contract, you will cause a default. Instalments, delayed or missed payment are frequent instances where payment is not made as foreseen. First, your creditor can give you some extra credit to put things in order. However, if the delay persists, the creditor will choose one of the following alternatives.
Postponement table. It is a temporarily agreed upon discount on your montly paid amount. For example, if you are in a transient emergency, you can arrange a six-month stoppage of work. Generally, your interest will be accrued during this period and the creditor may request that you make substantial amounts after your six-month sojourn.
Comparative bid. When your condition seems to be more than a passing rigor, your creditor can make a compromise bid, a fixed amount that he will take to complete your mortgage. Unless you can reach agreement on a conciliation scheme and the creditor does not enforce it, your interest will just keep accruing.
As soon as you have sold the house, the creditor will take back the cash you owed plus any interest earned because he has a second right of pledge on your possession. Even if you decide to keep the house for an indefinite period, you would not be able to obtain another mortgage. Existence of the second right of pledge substantially erodes your capital, which balances out most of the benefits of home ownership.
Your creditor will at least inform you that you are not making payment as arranged. As you may have noticed, it is better to settle your second mortgage later than your first. There is a little precision in this deduction, but only because the sealing off procedure is more complicated and less fertile for a second mortgage borrower.
However, a default on your second mortgage could still result in enforcement or another just as nasty option.