2nd Mortgage Question
Question: My wife and I have excellent credit though we ran up too much early in our marriage. We were “tricked” into a 2nd mortgage loan to pay those credit cards. Now, we have two loans. We’ve been in our house for 4 years and now, with the interest rates low, we want to look into a newer home.
My question is: can we move if we have a 2nd mortgage loan? Can’t it be “transferred” to the new home? Suggestions?!?!
Thanks,
Answer: If you buy a new home, you will most likely be contingent on selling your current home. When you sell your current home, you will go to a closing meeting where everything is settled. The money that the buyer pays goes into your “pot”. Then the 1st mortgage is payed off from the pot. Then the 2nd mortgage is payed off. Then the closing costs are payed off. You get what is left.
This all works great as long as you sell your house for an ammount that is greater than the sum of the first and second mortgage plus closing costs. That is why it is best to put 20% down, to ensure that you will be right side up if you are forced to sell early.
I bet you have this problem…did you take out a 125% LTV loan? Or borrow up to the full value of your house? If so, you are screwed. You likely would not even be able to refinance to a better rate until you are down under 90% loan to value on the house. The solution is to work hard, cut your spending, and pay down that 2nd before it sucks you dry. Wife inherits the house and the mortgage that goes with it. As long as she makes the payment, the bank is happy. If she cannot make the payment, the loan would likely go into default and the bank would “strongly suggest” that she refinance it with a new lender; or sell the house, pay off the mortgage, and pocket whatever might be left. Now you know why people buy life insurance; otherwise their widow is stuck with a huge house payment she can’t manage.
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