Second mortgage is an important commercial real estate tool.

Commercial second mortgages are normally used in conjunction with a new first loan. Typically the second mortgage will have a term of no less than five (5) years with interest only payments. While second mortgages can be critical in some situations, you must carefully consider your ability to service both loans.

There are many clear advantages to this type of creative financing. The most frequent use is a second mortgage that reduces the LTV (loan to value) of the first loan in order to allow you to more easily qualify for the loan. An example would be where the primary lender (first mortgage holder will only lend 70% LTV and you only have a 20% down payment. A second mortgage can be used to make up the difference.

There are a variety of options available to you such as: interest only payments, annual payments, exit fees, etc. that will help keep your immediate payments down and defer the costs of the second mortage. The idea is to give the property time to appreciate and thereby allow you to refinance and consolidate both the first and second mortgages at a later date at a then lower LTV.