Does Second Mortgage Increase Potential of Your Property?
Oct 22, 2018 Real Estate News
Real estate investment has a good return on investment potential indeed. However, one must not forget that buying a property is just not a one-time investment. You may have availed home loan while purchasing the house; the property needs maintenance. You may need an additional loan to do the repair or maintenance. In that case, you can approach another lender for the second mortgage and get a loan for the repair works. This implies that you can mortgage the same property twice to borrow additional funds.
Let us understand before going for the second mortgage as it involves a lot of risks, with a higher rate of interest.
There are three ways to avail a second loan on the same property:
This is treated as a pari passu charge, that is, both the lenders will exercise their rights on the property for the loan amount per say.
According to the master circular RBI/2015-16/46 of RBI in case of supplementary finance someone who may have raised funds for construction/acquisition of a property from other sources and requires additional finance, lenders may provide loan after obtaining pari passu or second mortgage charge over the property that’s mortgaged in favour of different lenders and/or against such other security.
This makes it difficult for lenders to fund the second mortgage. Also, the second mortgage means you will have to make two payments to two different lenders every month.
The second mortgage
The second mortgage is giving a loan against the property’s security that has already been mortgaged with another lender and being used for the second time to secure a new loan.Let us understand before going for the second mortgage as it involves a lot of risks, with a higher rate of interest.
There are three ways to avail a second loan on the same property:
- If the lender has kept sufficient margin between the amount of home loan and the property’s value, you can approach the existing lender for a top-up loan provided that your loan account is clear.
- You can contact another lender to re-appraise the loan through a balance transfer. This new mortgage will be created for the full loan amount in favour of the new lender. A no-objection certificate (NOC) will be required from the previous lender and other title deeds, for no charge on the property.
- If the new lender cannot fund you the full amount but is willing to settle for an additional amount required, take the NOC from the first lender to create a second mortgage in favour of the new lender.
Second mortgage loan settlement
While settlement, it’s the first lender to get preference over the new lender for the mortgaged asset.This is treated as a pari passu charge, that is, both the lenders will exercise their rights on the property for the loan amount per say.
According to the master circular RBI/2015-16/46 of RBI in case of supplementary finance someone who may have raised funds for construction/acquisition of a property from other sources and requires additional finance, lenders may provide loan after obtaining pari passu or second mortgage charge over the property that’s mortgaged in favour of different lenders and/or against such other security.
Is second mortgage good?
Availing the second mortgage is not easy to obtain. In case of default loan repayment, the first lender has a stake over the foreclosure, and then the remainder will go to the subsequent lender.This makes it difficult for lenders to fund the second mortgage. Also, the second mortgage means you will have to make two payments to two different lenders every month.
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