What Is a Second Mortgage?

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

Are you in need of a lump sum of cash to cover a financial emergency, make costly home repairs, pay off high-interest debt or make some other big-ticket purchase? If you have a sizable amount of equity in your home, a second mortgage could be an option. 

But how do they actually work, and where can you find these loan products? Keep reading to learn the answers to these questions and more to help decide if a second mortgage is right for your financial situation. 

What is Considered a Second Mortgage?

A second mortgage is a loan product that puts a lien against the portion of your home that’s already paid off. You’re free to use the proceeds you get from the loan however you want, and they often come with competitive financing terms. 

Second Mortgage vs. First Mortgage: Differences

When you take out a second mortgage, you make two separate monthly payments – one to your current lender and another to the second lender. And in the unfortunate event that your home is foreclosed, the second mortgage lender is only compensated after the first lender. 

Second Mortgage vs. Refinancing: Differences

Refinancing your home involves swapping out your current mortgage for a new one with different terms. The new lender pays off your existing balance, and you begin making monthly payments with the new lender. 

A second mortgage doesn’t quite work this way, though. As mentioned above, it’s a separate loan product, which means you are obligated to make two monthly payments. 

Reasons Why You May Want to Get a Second Mortgage

A second mortgage could be a smart financial move if: 

  • You have a lot of equity in your home and can afford to make two monthly housing payments. 
  • Your credit score is too low to qualify for a cash-out refinance with better terms than you currently have. 
  • You are eligible for a second mortgage with a competitive interest rate and want to pay off high-interest credit card debt. 
  • You want access to a revolving line of credit to cover large expenses that may arise. 
  • You plan to use the funds to make upgrades to your home that will increase its value.

How Much Can You Typically Borrow with a Second Mortgage?

The amount of equity you have in your home plays a major role in how much a lender will allow you to borrow with a second mortgage. To determine the amount of equity you have, subtract the remaining balance of your mortgage from the current value of your home. 

Most lenders let you borrow up to 80 percent of the equity you’ve built up. So let’s say your home is currently worth $375,000, and you owe $215,000 on your home loan; you could be eligible for a second mortgage of up to $85,000 ($375,000 * .80 – $215,000).

Common Types of Second Mortgages

Home Equity Loan

You can use this type of loan to convert a portion of your equity into cash. Loan proceeds are disbursed in a lump sum and payable (with interest) over an extended period – typically 5 to 30 years. 

Home Equity Line of Credit (HELOC)

A home equity loan is much similar to a HELOC in that it lets you tap into your equity. But instead of receiving the funds at once, you can borrow what you need from a line of credit with a preset limit on an as-needed basis. It works like a credit card, and you’re able to keep making payments and reuse the funds as often as you’d like until the draw period ends.

Things to Consider When Acquiring a Second Mortgage

Loan Purpose

A benefit of second mortgages that makes them stand out among other debt products is that you have the freedom to use the funds for any purpose. 

Borrowing Limits

Although many lenders impose a borrowing limit of 80 percent of your home equity, some will allow you to pull out as much as 90 percent for a second mortgage. Depending on how much equity your home has, this could be far more than you’ll find with personal loan products. 

Approval Times

It varies by lender, but you can expect it to take anywhere from 30 to 45 days to close on a second mortgage. The process you have to go through is basically the same as when you applied for your current mortgage, and the underwriting and approval process could be longer if there are hiccups along the way. 

Costs

Borrowing costs for second mortgages are generally higher than what you’ll find with primary mortgages. This is due to the elevated risk posed to lenders. So, if you’re considering a second mortgage to consolidate and pay off high interests debt, a cash-out refinance could make more financial sense.

Where to Get a Second Mortgage

The good news is that there are a lot of banks, credit unions and online lenders offering second mortgage options. But how do you know and determine which is best? You’ll have to do some legwork to narrow down your options, or you can start by exploring what reputable lenders, like Spring EQ, have to offer.

You can access up to 95 percent of your home’s equity through a HELOC or a home equity loan and use the funds however you want. So, you can finally consolidate your high-interest debt, that costly home renovation project or repair, start a business or make some other big-ticket purchase. 

Loan amounts of up to $500,000 are available, and you’ll get between five and 30 years to repay what you owe. And if you choose the HELOC option, you may be eligible for 10 years of interest-only monthly payments. 

Plus, Spring EQ features a digital process that makes it easier to navigate the lending process and get your funds. Even better, you’ll have a dedicated team of advisors standing by, waiting to provide expert guidance and assistance every step of the way. 

Get pre-qualified today in less than a minute by completing the brief online questionnaire.

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