It is a way to borrow additional funds from a financial institution, such as a bank or credit union, against the equity in your home. These types of loans are usually used to finance major purchases, such as home improvement projects, college tuition, or another large expense.
Second mortgages are also known as "piggyback" loans because they essentially piggyback off of the primary mortgage. The borrower will have two loans, one being the first mortgage and the other being the second mortgage. The interest rate for these types of loans is typically higher than the interest rate of the existing mortgage and may be adjustable or fixed. The loan amount is determined by the equity in the home and can range anywhere from 10-90 percent of the home's value.
The main advantages of second mortgages are the ability to access a large amount of funds at one time and the ability to keep the existing mortgage, which allows borrowers to maintain a lower interest rate. The downside is that the borrower will be responsible for making two separate payments, each with its own terms and conditions.
In order to take out a second mortgage, borrowers must provide evidence of steady income and a good credit score. It is important to compare rates from different lenders to ensure you get the best deal possible. Additionally, borrowers should be aware of any potential fees associated with the loan.
When taking out a second mortgage, it is important to consider the long-term implications. The borrower will have to make payments on both loans for the life of the loan, even if the home is sold. Furthermore, if the borrower defaults on the second loan, the primary mortgage lender may be able to access the equity in the home to pay off the second loan.
In summary, a Second Mortgage Definition is a type of loan that is taken out in addition to a traditional mortgage. These loans are usually used to finance major purchases and can provide borrowers with access to large amounts of funds. They typically have higher interest rates than the primary mortgage and the loan can range anywhere from 10-90 percent of the home’s value. When considering a second mortgage, borrowers should be aware of the long-term implications and research their options to ensure they are getting the best deal available.
This article was contributed on Oct 23, 2023
