QandAs: Loans

What is a Second Mortgage?

Answer:
A second mortgage is an additional

mortgage loan on a property. A second mortgage takes the second lien position to your primary mortgage loan. Second mortgages are used to access the equity you’ve built up in your home. Many people choose to take out a second mortgage to assist with a down payment, consolidate debt, pay off medical bills or to renovate their homes.

If you default on your second mortgage the lender who holds the second mortgage only gets paid after the holder of the first mortgage is paid. Because of this, lenders consider second mortgage loans to be riskier. Second mortgages are usually a shorter term note and come with a higher interest rate than your primary mortgage.

Second mortgages are not the same as refinancing your initial or primary loan. When you refinance a first mortgage, you renegotiate the terms of your primary loan. You may wish to refinance a first mortgage when interest rates are much lower than the current interest rate on your loan.

It is not unheard of to have third (and fourth) mortgages. But, the costs usually tend to increase with each mortgage loan. Before you decide to take out an additional mortgage on your home you should check out all your options. (If you’re unable to pay your second mortgage, you could lose your home to foreclosure.) Discuss your various options with a real estate expert as well as your financial advisor.


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