Second Mortgages

What is a Second Mortgage

A second mortgage is a loan that allows homeowners to borrow against the equity they have in their property, in addition to their primary (first) mortgage. It's called a "second" mortgage because it ranks subordinate to the first mortgage in terms of priority if there's a foreclosure or repayment issues. If the homeowner defaults on the loans and the property is sold, the first mortgage will be paid off first before the second mortgage.

There are two common types of second mortgages:

Home Equity Loan: This type of second mortgage provides a lump sum of money to the homeowner, usually with a fixed interest rate. Borrowers receive the entire loan amount upfront and repay it over a specified term, typically with monthly payments.

Home Equity Line of Credit (HELOC): A HELOC functions more like a revolving line of credit. It allows homeowners to borrow money up to a certain limit, using their home equity as collateral. Borrowers can withdraw funds as needed during a draw period, usually several years, and then enter a repayment period where they make payments on the outstanding balance, which may fluctuate.