Second Mortgage

A second mortgage is a loan that is secured against your home, in addition to your primary mortgage. It is called a “second” mortgage because, in the event of a foreclosure, the first mortgage lender has priority in being repaid. The second mortgage lender is paid only after the first has been satisfied.

There are two primary types of second mortgages:

1. Home Equity Loan: A lump-sum loan with a fixed interest rate and repayment schedule.

2. Home Equity Line of Credit (HELOC): A revolving line of credit, similar to a credit card, that allows you to borrow up to a certain limit as needed.

Second mortgages are based on the equity you’ve built in your home, which is the difference between your home’s current market value and the balance of your first mortgage. Lenders typically allow you to borrow up to 80–90% of your home’s appraised value, minus what you still owe on your primary mortgage.

For example, if your home is worth $400,000 and your first mortgage balance is $250,000, you may be eligible to borrow up to $90,000 as a second mortgage (assuming 85% LTV).

• Access to Large Funds: Ideal for financing big-ticket expenses like home renovations, education, or medical bills.

• Lower Interest Rates Than Credit Cards: Because the loan is secured by your property, interest rates are typically lower than unsecured debt.

• Potential Tax Deductibility: In some cases, the interest on a second mortgage may be tax-deductible if the funds are used to improve the home.