Second mortgages are loans taken against a home that already has a mortgage on it. In the case of a second mortgage, you are using your own home as collateral for the loan.
Using the equity built up over time in your first home, you can take out a second mortgage to finance other big purchases with solid collateral. Some investors will take out a second mortgage in order to secure a down payment for a second property.
There are two common kinds of second mortgages: home equity loans or home equity lines of credit (HELOCs). Home equity loans are close-ended loans borrowed and paid back over time. HELOCs are open-ended loans that are borrowed against a homeowner’s home, paid back, and continuously borrowed if necessary. A HELOC IS similar to a personal line of credit or a credit card except there is collateral involved.
Getting a second mortgage is not as easy as getting a first mortgage. Although you are able to borrow from a few different lenders, such as banks, credit unions, and alternative lenders, you are likely to face extremely high-interest fees with an alternative lender, as there aren’t as many of them available for a second mortgage. Banks and credit unions are the best choices in terms of interest rates for second mortgages.
