Second Bond (Further Mortgage Bond)
A second mortgage bond typically refers to a secured mortgage loan that is subordinate to another loan against the same property.
In real estate, a property can have multiple mortgage bonds or liens against it. Second bonds are called subordinate because, if the mortgage loan goes into default, the first mortgage gets paid off first before the second mortgage. Thus, second bonds are riskier for lenders and generally come with a higher interest rate than first mortgage bonds.
In most cases, a second further mortgage bond takes the form of a home equity loan and the two are synonymous, from a financial standpoint. The difference in terminology is that a mortgage bond traditionally refers to the legal lien instrument, rather than the debt itself.
The term length of a second bonds varies. Terms can last up to 30 years on second mortgage bonds; however repayment may be required in as little as one year depending on the mortgage loan structure.
A second bond can occasionally be the catalyst to foreclosure when a homeowner defaults on their mortgage loan. The second lien holder then purchases the primary mortgage bond (which may still be in good standing) and then forecloses which leaves the homeowner losing their home to the 2nd mortgage lender.
Generally, when considering the application for a second bond, lenders will look for the following:
* Significant equity in the first mortgage bond
* Low debt-to-income ratio
* High credit score
* Solid employment history