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What Does Taking Out A Second Mortgage Mean?

By Stacy Williams

Tips that explain what a second mortgage is.

Taking out a second mortgage usually means borrowing against the amount of equity you have in your home. Equity is the dollar amount of the mortgage that is owed subtracted from the current value of the property.

Determining the Equity

For example if your property is valued at one hundred thousand dollars and you still owe fifty thousand then your equity is fifty thousand. Simply subtract the balance owed on the mortgage loan from the property value and the result will be the equity you have available.

Additional Risks

Borrowing an amount of cash equal to the amount of equity is considered taking out a second mortgage. This second mortgage must be paid in addition to the monthly payment on the original mortgage. If you fail to pay the second mortgage you face just as much risk of losing your home as you would by not paying the original mortgage note.

Interest Rates

The interest rates for a second mortgage are usually higher. This is because if you should default on the mortgage, any funds collected will go to the original mortgage first and the second mortgage will be second. This type of mortgage is fairly popular when you want to raise extra money. It is especially helpful if you want to pay off credit cards or other debts. The interest on the second mortgage will also be deductible on your income taxes. It’s best to try to get the second mortgage from your current lender but be sure to check with a few different lenders so you can get the best interest rate. The rates may vary greatly so you will want to accept the lowest interest rate possible.

Second mortgages can be very useful if you need to make improvements on your home.

Related posts:

1. What Is A Closed End Home Equity Loan?
2. Can Current Interest Rates Affect My Borrowing Power?
3. Is A Mortgage An Assett?
4. How Do I Build Up Home Equity Quickly?
5. What Is A Reverse Equity Mortgage?