Second Mortgage
A second mortgage is an additional loan taken against a home that already has a primary mortgage. It's subordinate to the first mortgage, meaning the original lender gets paid first in a foreclosure. Second mortgages include home equity loans (fixed-rate, lump-sum) and home equity lines of credit (variable-rate, revolving).
Second mortgages are secured by your home equity. If your home is worth $500,000 and you owe $300,000 on your first mortgage, you have $200,000 in equity. A lender might allow you to borrow up to 85–90% of your home's value across both loans, meaning you could potentially get a second mortgage of $150,000 ($500,000 × 90% = $450,000 − $300,000 = $150,000).
Home equity loans provide a lump sum at a fixed interest rate, typically repaid over 10–20 years. They're good for one-time expenses like a major home renovation or debt consolidation. HELOCs work like a credit card—you draw funds as needed, pay interest only on what you use, and the rate is usually variable tied to the prime rate. HELOCs have a draw period (typically 10 years) followed by a repayment period.
The 'subordinate' position of a second mortgage makes it riskier for the lender—if you default and the home sells at foreclosure, the first mortgage is paid in full before the second mortgage gets anything. This risk is why second mortgage rates are higher than first mortgage rates, typically by 1–3 percentage points.
Key Takeaway
A second mortgage is an additional loan taken against a home that already has a primary mortgage. It's subordinate to the first mortgage, meaning the original lender gets paid first in a foreclosure. Second mortgages include home equity loans (fixed-rate, lump-sum) and home equity lines of credit (variable-rate, revolving).
Related Terms
Frequently Asked Questions
A home equity loan (second mortgage) gives you a lump sum at a fixed rate. A HELOC is a revolving line of credit with a variable rate—you borrow what you need when you need it, like a credit card secured by your home.
It's more difficult. Lenders for second mortgages typically require 680+ credit scores, though some subprime lenders go lower at much higher rates. The less equity you have and the worse your credit, the harder and more expensive it becomes.
Interest on home equity loans used to substantially improve your home may be deductible. Interest used for other purposes (debt consolidation, vacations) is generally not deductible under current law. Consult a tax professional.
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