Can I Buy a Mortgage on A House That is Already under a Mortgage
In simple words, Yes absolutely. Traditionally, a mortgage was introduced to enable people to buy a home even if they were unable to pay the entire value of the property up front. They would pay of the borrowed money in regular installments and eventually own the property as a whole. But if we go to the basic structure of it, a mortgage is simply as loan with a strong residential property as collateral, which the lender could liquidate in case of any default in payment. So we can see here, that to borrow a mortgage all we need is, residential collateral to the borrowing.
What is a Second Mortgage?
As realized earlier, a mortgage requires a residential security for the borrowing. Once you purchase a mortgage, you start paying off monthly installments and eventually clear your borrowed amount. As you are paying off the mortgage premiums, you increase your equity in the property. In simple words, you start increasing your ownership in the property. Hence, the un-borrowed share, which is your equity is yours to collect in case of a property sale.
How Does a Second Mortgage Work?
A second mortgage is thus borrowed over this share of your property. In any mortgage, a minimum percentage of the property, often required as a down payment, must be paid by you. This is commonly 20% of the property value. This share cannot be borrowed upon, but the remaining equity is on which the second mortgage can be availed. Example, say you had initially borrowed a 60% of the value on a mortgage, and had self-paid 40%. Eventually after a few payments you now own 75% of the home and 25% is yet under your mortgage. Now due to some requirement, you need to borrow some money, say for a home renovation. You can simply hold a 20% to yourself, 25% to the first mortgage lender, and hedge the remaining 55% to another or the same lender to buy a second mortgage.