What is a Second Mortgage?

Find out how second mortgages work, and whether a second mortgage might be a good choice for you.

Sometimes, you need extra money for things like repairing your home, making an addition, or just remodeling. In other cases, you might want to have some money to take a nice vacation, or pay for your child’s schooling. If you own your own home, there are some second mortgage choices available to you so you can get the money you need.

The most common of the second mortgage choices is the home equity loan. This loan is based on the equity you’ve already earned in your home. Basically, you’re borrowing money that you’ve earned just by your house’s value appreciating. A basic appraisal and some forms are needed, and small closing costs are involved, but the money is then yours to use as you see fit. It is then repaid in monthly payments just like your regular mortgage or other loans. Remember that second mortgage choices often have a higher interest rate than the first because this is considered a higher risk mortgage. The bank will always collect on the first mortgage first in the event of default.

Typically, second mortgage choices are an excellent choice for responsible borrowers who know how to manage their money. Most of these types of mortgages have similar terms as the first, but can range anywhere from fifteen to twenty year terms. Be aware that the second mortgage terms often depend on the amount of the loan, and some can actually have a term period as short as one year. Shop around for the various second mortgage choices available to you, and remember that you don’t have to stick with the same lender as your original mortgage. Be sure you also get a good appraisal amount so you can get the most out of your home. Second mortgage choices are a great way to have extra cash for the larger projects you have or the things you need to enjoy life—just be sure that you have a way to stay on top of the payments.