A second mortgage may also be referred to as a second loan, a home equity loan, or even a "piggyback" mortgage or loan. A second mortgage is an additional mortgage that a homeowner takes out on their home, above and beyond their first or primary mortgage. Second mortgages may typically be taken out up to 85% of the appraised value of the home (meaning that the total loan-to-value of the primary and second mortgage add up to 85% of a home's market value).
A second mortgage gets its name from the fact that it is a subordinate mortgage to the primary mortgage and is in a second lien position behind the primary mortgage. A second lien position means that in the event of a foreclosure, the proceeds of the sale of the home would pay off the primary mortgage first, and the second mortgage second. It is also possible for a home to have third, and fourth mortgages, the number referring to the loan's relative lien position.
Second Mortgage Rates
Similar to primary mortgages, the interest rate for a second mortgage can either be fixed or adjustable. For a fixed-rate second, the interest rate and monthly payment will remain constant throughout the term of the loan. For an adjustable-rate second mortgage, the interest rate and the monthly payment will fluctuate over the term of the loan.
Second Mortgage Term
Second mortgage repayment terms are typically not as long as a primary mortgage (which is typically 30 years). Some second mortgage loans may, however, take 15 to 20 years to repay.
Second Mortgage Fees
Similar to other types of loans, lenders may charge borrowers fees to obtain a secondary mortgage. Shopping various lenders should help to keep the fees reasonable.
Uses for a Second Mortgage
The most common uses for a second mortgage are: