Second Mortgage: What is it Exactly?
Everyone has heard a friend or relative complain about
having to take out a second mortgage but don't really know
what that means. Let's find out!
The real term for this is called a home equity loan. This
is a common loan type that homeowners can use for whatever
A home equity loan requires that you use your house for
collateral just like a normal home loan. There are
different types of home equity loan out there and you can
always use the money for whatever you want.
College, bills, and home repairs are some common uses. You
will need outstanding credit to be approved for this kind
of loan though.
A closed end type home equity loan gives you a big chunk of
money immediately and you can't get another loan until this
one is fully paid.
The amount you can get depends on factors such as how much
your home is worth, your income, credit score, and similar
things. A closed end loan usually comes as a fixed rate
type and allows you up to 15 years to pay it off.
An open ended home equity loan is a little different. This
loan will let you borrow money whenever you have a need for
The loan lender will set up a line of credit that is pretty
much based on all the same factors as the closed end loan.
These usually have an adjustable rate and you can make
payment for 10, 15, or even 30 years.
So why are these called second mortgages? Because you are
adding yet another loan payment that uses your house as
collateral and adding another monthly payment. Though
tempting, it can cause you a lot of problems in the future.