Second Mortgages

Let's say that you've found the perfect home, but between your down payment and the first mortgage you negotiated, you don't have quite enough. A second mortgage may be an option. However, a first mortgage is usually at a lower interest rate than a second mortgage, so it's going to cost you money.

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Before you get a second mortgage, check with your first mortgage lender and see if they would be willing to give you a larger first mortgage. This is always a better option, if possible.

In most cases though, you'll be negotiating a second mortgage because you need money to fix your house or for another cash emergency.

In effect, most second mortgages are simple interest loans that are placed in second position on the property title. This means that they will be paid off on the sale of your home after the first mortgage has been paid in full.

The interest rate for a second mortgage is usually fixed with a choice of term lengths that range from 5 to 20 years.

Second mortgages can also be known by other names such as, home equity loan, home equity line of credit, home improvement loan or a debt consolidation loan. The common factor with these loans is that lenders require them to be secured by a second mortgage lien on the subject property. Liens on a property are required to be paid in full when a property is sold.

If you already have an existing second mortgage or home equity loan, it must be paid off with the new loan. You'll be increasing the amount of your debt in a single second mortgage.

Interest paid on a second mortgage may be tax deductible providing the loan is on your primary residence.

If you are considering a second mortgage, you should also approach your first mortgage holder before signing those papers! If your home has increased in value since you purchased it, or you've owned your home for a number of years, you may have 'equity' in your home that your first mortgage lender would be willing to 'roll into' your first mortgage. While this will give you the needed cash it will also mean that you will be paying your mortgage longer.

Now, this is only a good deal if the lender will give you the bigger mortgage at your existing interest rate or lower, and without excessive fees. Check all the fine print before you sign anything. Also, be sure this is what works best for you.

Mortgage Guide 101. Used with permission. See