A third mortgage is a mortgage placed on a property that already has a first and second mortgage. These will always take precedence over the third mortgage. Today, third mortgages are quite rare and it is unlikely that you will find a lender willing to offer one. When granted, the interest rates on third mortgages are quite high.
Third mortgages are hard equity loans. The loan to value (LTV) and Superior to Subordinate Ratio (SSR) will be carefully considered by the lender. A smaller third mortgage on a home with a higher value is more likely to be approved. The total loan amount on the property, including all mortgages, will be a critical factor in the approval decision.
Should a foreclosure occur, the lender needs to believe that the home will bring enough at auction or forced sale to cover both the first and second mortgages, as well as their loan. In this event, the first and second mortgages will be paid before the third is. High risk loans, including third mortgages, are harder to come by than ever before, especially given the recent crisis with the sub-prime lending industry and difficulties in the real estate market.
One option that may still be accessible in today’s economy is to secure a third mortgage with your home equity. If you have excellent credit and a significant amount of home equity, it may still be possible to secure a home equity line of credit, or HELOC, as a third mortgage. To do this, you will need to leave your first and second mortgages out of the refinance on your home.
If you can find a lender willing to offer a third mortgage, you will need all standard loan application documentation, including tax records, pay stubs, and proof of income. You will also need verification of both your first and second mortgage amounts in order to apply for the loan.
If you think you need a third mortgage to provide you with necessary funds, start by visiting your bank. Refinancing options can still be available for borrowers with excellent credit, even if third mortgages are not. If you need money and are considering a third mortgage to manage your debt, you may want to visit a reputable credit counseling agency or contacting your creditors on your own. Borrowers struggling with an existing second or third mortgage may want to be aware that in a few instances, these loans can be discharged during bankruptcy proceedings.