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A second mortgage is a mortgage loan secured over the amount of the first mortgage. In a broader sense a second mortgage is a mortgage over the previous mortgage, the maximum loan amount of which is determined by calculating the equity (equity is the difference between the actual value of the home and the total amount of loan) of the home/property. Second Mortgages generally carry a higher interest rate and are for a shorter period of time as compared to the first mortgage.
When to take a 2nd mortgage?
Second mortgage on a residential property is generally taken by people in order to summon gains and appreciation that can be used for investments or any other expenditure. Second mortgages are also used to pay off debts as the total monthly payments become lesser in the later case. There are some other reasons such as home improvements/refurnishing, business loans etc why people opt for a 2nd mortgage and is mostly done to utilize the equity value of their homes.
Types of Second Mortgage
Home equity line of credit
A home equity line of credit type of second mortgage is equal to the adjustable rate mortgage and has a fixed interest rate for some time after which it (interest rate) becomes flexible.
Fixed Rate Mortgages
Second mortgages having a fixed rate of interest are known as fixed rate mortgages. They can range from 15 year loans to 30 year loans.
Although second mortgages may seem tempting they may prove dangerous if not dealt with caution. In all regards it's always better to avoid them as far as possible.
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