Difference between Second Mortgage and Mortgage Refinance
There is big difference between second mortgage and mortgage refinance. Basically both terms are look like similar but in reality, there is very huge gap. Before we move to the difference we must understand the definition of these two types.
Second Mortgage
Second mortgage means equity finance in terms of Home Loan. In equity finance, lender may approve the credit limit base on available cushion in existing mortgage. Whereas, in real estate terminology second mortgage means, second lien of property. In default, liability of first lien will settle first then second lien. We may call that second mortgage means the second right on property after satisfying the first right or mortgage.
Mortgage Refinance
Mortgage refinances means, obtaining finance on your existing mortgage loan by settling the payment of first mortgage. In refinance, existing mortgage loan is first pay off and then second lender creates mortgage on the same property. It is also called Balance transfer facility.
Difference between Second mortgage and Refinance mortgage
Find below the basic difference between second mortgage and refinance mortgage in point wise;
- In auction, Second mortgage lender’s hold the second right whereas in refinance, lender keeps the first right.
- Second mortgage reflects the second facility on same property whereas; refinance means another facility after adjusting first facility.
- In second mortgage, lenders have second priority in auction whereas; refinance mortgage keeps the first priority and base on this priority second mortgage loan get approved.
- Borrower can go for same lender for the creation of second mortgage on the same property whereas; in mortgage refinance, borrower will contact another lender.
- The need of both products is different; second mortgage is done for another facility whereas; mortgage refinance is requested on the existing facility.
- The second mortgage is risky and lender impose higher interest rate whereas the mortgage refinance is not risky and lender offer competitive rate.
- Equity finance is based on cushion available in existing limit whereas; mortgage refinance is always treated as fresh facility.
- The motive behind both facilities is different; second mortgage facility is only requested to generate funds whereas mortgage refinance is requested to change the terms and conditions.
- Second mortgage increased the debt burden of borrower but mortgage refinance is usually availed to reduce the burden.
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