Second Mortgages - Home Equity Loans

Borrowing Against Your Home's Equity

A second mortgage is a secured loan that coincides with, and is in addition to, a first mortgage on the same property.

The original loan taken out on a home or property is considered the first mortgage. Any subsequent loan taken out which uses the same home as collateral is referred to as the second mortgage.

Second mortgages are often also called home equity loans. Typically a second mortgage amount can be for no more than the amount of equity that your home has (although some lenders will offer 110% equity loans or something similar).

Why do people take out a second mortgage on their home?

To cash-out their home's equity to get out of debt

To finance projects such as home improvements or remodeling

To pay for a luxury such as a new boat or a resort vacation

Debt consolidation is probably the top reason why people get a second mortgage. Credit cards and other common debts carry huge interest charges and it can easily overwhelm a person. So they may take cash out of their home's equity to pay off all that high-interest debt and replace it with an easier-to-pay debt that carries a much lower interest rate and a long payback term.

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Home Buying Vocabulary

Escrow

An amount set up by the lender into which the borrower makes periodic payments for taxes, hazard insurance assessments, and mortgage insurance premiums.

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Frequently Asked Question

What happens at the loan closing?

Answer:
The finalization of the mortgage loan, the transfer of title to the property, and the payment for the property to the seller all take place at closing. All involved paperwork is explained, usually by a representative from the title company. All of the paperwork is then signed by the appropriate parties, and the transfers of property and funds are made.

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