- A traditional second mortgage is structured like your primary mortgage; you borrow a specific amount and repay it monthly according to the terms of your second mortgage documents. Financial institutions often refer to second mortgage loans as home equity loans.
- Home equity is the difference between the current value of your home and balance(s) of mortgage loan(s) owed against it. Lenders typically limit the combined amount of your primary mortgage balance and second mortgage balance to no more than 80 percent of your home's current value.
- Getting approved for a second mortgage is often easier and less expensive if you have good credit. Your lender will verify your income, employment, credit and determine the value of your home as part of approving a second mortgage loan.
- A home equity line of credit (HELOC) is a popular alternative to a traditional second mortgage loan. Your lender approves a credit limit, and you can access funds when needed and pay interest only on amounts you use.
- Use care when taking out a second mortgage or using HELOC funds. Second mortgage and home equity lenders can foreclose if you fail to make payments, and property values can decrease, which reduces home equity and can lead to owing more on mortgage loans than your home is worth.
