You may have heard of a second mortgage, but did you know there is a third? If you know a little bit about second mortgages, you will know that the second is also referring to the order it is paid, and it’s the same with the third mortgage. Let’s take a look at it in more detail.
How much money you can get from a third mortgage loan depends on the value of your property. As mentioned, a third mortgage doesn’t only refer to the sequence it was taken out, but also the order in which it is repaid.
It seems like a third mortgage is the least of your worries since it seems so far away, but that’s not the case. You still need to pay it off in a timely manner, just after your first and second mortgages. As you can probably guess, the interest rate is also much higher.
So your payment schedule will look like this: you make monthly payments for your first and second mortgage, but now you also have a third mortgage to pay off.
A third mortgage may seem excessive, so how does someone know if they need it? Everyone has a different financial picture, so it may make sense for some. It can really help you out in a bind if you need cash for emergencies, or to renovate your home or put a down payment on a subsequent home.
Similar to a first mortgage or a second mortgage, a third mortgage allows you to take money out of the value of your home for certain situations.
Just like a first mortgage and second mortgage, the lender will need to take a look at some documents. The factors that they are going to look at include your credit score and history, property value, and income.
Since third mortgages bring the lender even higher risk than the first two mortgages, you have a better chance at qualifying for third mortgages and getting better interest rates if you hold more home equity.
The better these factors look in the eyes of your mortgage lender, the more chance you will have at qualifying for one. Also, if you have a second mortgage, we suggest going with the same lender for your third mortgage. This way, you have a better chance at qualifying as well.
The first advantage of acquiring third mortgages may also be the most obvious. It allows you to have cash on hand when you need it. Hopefully, those who take out third mortgages are being responsible with the amount and not taking it out for a lavish lifestyle.
We say this because it would be much more difficult to make monthly payments if you are not budgeting responsibly.
Another pro of third mortgages is that it can be used for good things such as sending family members to school, making other property investments, fixing up your home if something is broken, etc.
A third mortgage also allows you to take out a bit more than a second mortgage. Third mortgage rates can go up to 85% of your property value ! Which means the more valuable your home is, the larger the amount you can take out.
A third mortgage also makes more sense in a pinch since credit card interest rates can be sky high and mortgages may actually make more sense.
As mentioned, third mortgages are the riskiest for the lender. Since they won’t be paid back unless you pay off two other lenders before him (this is if you don’t go with the same lender), not many mortgage lenders are willing to take it on.
Traditional lenders and banks may be very hesitant to dole it out, so you may have to turn to a private lender. Since the risk is there, the interest rates are also higher. A third mortgage can come in 2 year terms, and the amount again depends on the value of your home real estate.
A big con of having a third mortgage is there are three payments that need to be made. That’s a hefty amount going to mortgages every month and also puts you in an easier position for your home to go into foreclosure if you default.
However, if you do go into foreclosure, the first and second mortgages are paid off first. So even then, your third mortgage lender may not be getting everything he is owed.
Some may feel like their home is a bottomless treasure trove that can yield mortgage after mortgage when you need it. While this is true to some level, you shouldn’t put yourself in that position unless there is a good reason.
You may also need a strong portfolio to qualify for a third mortgage since the lender will suffer the most risk. Being well prepared before the mortgage meeting could also increase your chances. If a traditional lender turns you down, you can always turn to a private lender.
Want to broaden your knowledge on mortgages? Learn what receiving a demand letter means, next!