What Is A Second Mortgage?
A second mortgage is a mortgage that is lodged against the title of your property and sits behind another mortgage called the first mortgage. The first mortgage will have a priority arrangement with the second mortgage – this mean in a situation where there is a loan default and sale of the property by a lender the first mortgage will be paid first, and the second and subsequent mortgages are paid from remaining funds.
Risks and Benefits of second mortgage loans?
Second mortgage loans are usually required for one of two reasons, as under normal circumstances the risks outweigh the benefits:
- You don’t fit the lending criteria of traditional or other lenders.
- You need the funds urgently and other more main stream lending cannot provide funds in sufficient time frame.
Some of the benefits of second mortgage business finance relate to the two points above which I will expand on:
Second Mortgage Lending Criteria
- Second Mortgage Finance is predominantly for business purpose only.
- Usually no income assessment is required.
- Pure Asset Lending
- Suitable for start-up businesses – 1 day ABN registration.
- Payment of Tax Debt and other business debts ok
- Some don’t require valuations
A second mortgage needs to be approved by the first mortgagee which can take some time. While the second mortgage lodgement is being negotiated with the first mortgagee, the funder provide funds secured by a caveat against the property title. This allows for extremely fast loan settlements.
- 24-48 Hour settlement achievable – pending all requirements met.
Uses for Second Mortgage Finance
- Pay creditors to stop a business wind up
- Business Restructuring – closing one income entity and establishing a new trading ABN and entity.
- Liquidation of a company – which also relates to business restructuring, when a company os liquidated and there are company overdrafts and business loans, these will usually need to be restructured under the new entity in a relatively short period of time. The short term nature of the income wont fit the lending criteria of traditional lenders.
- Part or full payment of ATO debt – first mortgage refinance is the preferred method of funding ATO debt, however at times second mortgages are required if a pending judgement or court proceeding is imminent and funding cannot be settled in a satisfactory time frame.
- Part or full payment of business debts such as outstanding invoices, business overdrafts, business loans etc.
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