What is a second mortgage?
A second mortgage is just that – it is an additional mortgage on a house or other property where the original mortgage is still in effect. The term “second mortgage” denotes the loan’s priority in getting paid upon default. If you fail to pay your mortgages, and your home is foreclosed upon and sold to pay off the loans, the original mortgage will be paid before the second mortgage.
When Do People Get Second Mortgages?
Many people take out a second mortgage in order to pay for big ticket expenditures that might be difficult to cover in another manner, such as with a credit card. These expenditures include a new car, home improvement projects, and college tuition. Some people also use second mortgages to consolidate debt.
Benefits of a Second Mortgage
There may be some benefits to using a second mortgage. For instance, the interest rate may be lower than the rate for personal loans or credit cards. Additionally, the second mortgage’s interest may be tax deductible. Although a second mortgage may be an easy way to borrow a large sum of money, it can be risky, since you are using your home to secure it. That means if you default on both mortgages, your house will be sold, the sale proceeds will go toward paying off your original mortgage, any money left over will not go to you but toward paying off the second mortgage, and you may be liable for any remaining balance on the second mortgage after that.