Overview

Many people who own their own home never even consider a 2nd mortgage. They obtain one mortgage to purchase their home, and they may refinance down the line, but this refinance does not constitute a 2nd mortgage. This is because a refinance pays off the first mortgage, and replaces it with a second loan. On the other hand, a 2nd mortgage is a loan that exists simultaneously with the first mortgage, and is also secured by your home.

People take out 2nd mortgages for a number of reasons. Sometimes a 2nd mortgage begins at the same time as the first mortgage, the time of the purchase of the home. In this case, borrowers may take a 2nd mortgage in order to make a large down payment and avoid having to pay premiums for mortgage insurance. Borrowers might also take a 2nd mortgage to avoid having to take a jumbo loan, and to put their first loan back into the conventional loan category.

At other times, borrowers take a 2nd mortgage later on in order to help accomplish their goals. Rather than refinancing their first mortgage, borrowers may want to take a 2nd mortgage in order to use the equity in their home to get cash to pay down other debt, pay for their children’s college expenses, make home improvements, or accomplish other goals. Another option that is similar to, but also slightly different from, a 2nd mortgage is a home equity line of credit.

Not uncommon, 2nd mortgages can be highly advantageous to many borrowers. In this section we will take a closer look at 2nd mortgages and the issues that go along with them.