What Is a Second Mortgage & How Can it Benefit You?

A second mortgage is, in its most basic form, a home loan that is similar in many ways to your primary mortgage, but different enough to confuse potential borrowers.

What Is a Second Mortgage & How Can it Benefit You?

This type of home loan has benefits and drawbacks; however, depending on your purposes, it can solve some unique and challenging problems when used correctly. But if you decide this loan isn’t for you, do you have any alternatives?

What Is a Second Mortgage?

“Mortgage” is a catchall term used to describe a real estate loan that places a lien on the property, for the security of the lender. In other words, if the borrower fails to comply with the stated terms of the loan, the lender can seize and sell the property to avoid a loss.

If you financed the purchase of your home, that loan is generally known as the first mortgage. If you place additional debt on the property, that loan is typically called a second mortgage.

Most borrowers who take a second mortgage do so to cash out a portion of the equity they have in their home. They may do this to pay for major repairs, upgrades or improvements to the property, or to pay off other debts.

In some cases (although it’s less common since the 2008-2009 market crash), buyers use a first and second loan to purchase their home. The reasons you might want to do this vary — talk to your loan officer if you think this might work for you.

What Are the Pros & Cons of a Second Mortgage?

A second mortgage can provide a means of accessing the equity in your home and converting it to cash, often at a lower interest rate than you might get on a credit card or personal loan.

The most common problem related to this type of home is loan is that they can be costly, both in interest and closing costs. And because the lender will have a lien on your home, they can foreclose if you fail to make your payments or otherwise default on the loan.

However, because the second lender’s rights are subordinate to the first lender’s rights, the process is a little more complex from a legal perspective. In many cases, the filing of a foreclosure by the subordinate lender compels the first lienholder to initiate their own foreclosure action.

What Are the Alternatives to a Second Mortgage?

In today’s lending market, these types of mortgages are not as readily available as they were a decade ago. Unfortunately, the alternatives are even more scarce. These include personal loans and credit cards, or you could potentially take a loan from your 401(k).

One of the most viable alternatives is refinancing your home for a higher amount.

To determine which type of home loan might be right for you, talk to the lending professionals at Intercap Lending. Based in Provo, Utah, we offer a full range of loan products to meet our clients’ needs. We have a reputation for our expertise and exceptional customer service. Contact us today to learn more about our second mortgage programs and other home loan products.