Hawaii second mortgages are loans that are taken out using the equity of a Hawaiian home as collateral. Sometimes second mortgages are confused with refinancing, in which a new mortgage replaces the initial mortgage agreement. However, second mortgages are not replacements, but rather subordinate to the original mortgage agreement, which must still be paid off according to its terms.

Because of its junior status in comparison with the original mortgage, a second mortgage also ranks secondary to the primary mortgage. This is true in terms of payment priority as well as lender security. The borrower's first priority is always to pay off the first mortgage loan. Thus, the lender of the second mortgage will always be in a more risky position than the lender of the primary mortgage.

Hawaii Second Mortgage Interest Rates

Let's briefly look at the extreme case of a foreclosure--something no one enjoys contemplating, which is why I'll do it briefly! If the borrower of a second mortgage were to foreclose on the property, the property would revert to the first mortgage lender. They would then resell it to pay off the borrower's outstanding debt obligation.

What happens to the second mortgage lender? It must wait for the first lender to get its money. Then it must make its own arrangements to recoup the money, either from what's left on the home equity, or through some other means. The far more vulnerable position of the second mortgage lender demonstrates why interest rates on second mortgages are, as a rule, higher than those of primary mortgages. However, enough options are available in second mortgage plans, from fixed to adjustable interest rates, for Hawaii homeowners to still consider them a great loan option.