What it is:
How it works/Example:
Junior mortgages are very similar in concept to traditional mortgages. For example, junior mortgages generally must be repaid over a fixed period. Some lenders may fixed rates on these loans; others might variable rates.
Like first mortgages, most banks also charge points and other fees for generating the junior mortgage (attorney fees, title fees, insurance and documentation fees, for example), and these costs vary by bank. In some cases, the might charge a fee if the borrower prepays the loan. And because the loan is secured by a house, if the borrower defaults, the lender may foreclose on the house.
Why it matters:
Junior mortgages can be viable options when compared to unsecured loans. In addition, mortgage interest is tax deductible, making the interest rates on junior mortgages sometimes lower than they appear when one considers the tax savings.
However, not all junior mortgages are created equally. Borrowers are well served to compare fees, interest rates and terms among . After all, when a borrower defaults, his or her home could end up belonging to the bank for good.