Introduction to Second Mortgages

Since the 1930's, when mortgages got their start, a majority of homeowners have had a mortgage loan. More recently, more and more of them have added a 2nd mortgage, as well. How is a second mortgage different from the first? What can you use it for?

Second mortgage loans: A primer

A second mortgage is any loan that is secured by the value of your primary residence, except for the old, familiar first mortgage. It comes in two formats. The first is a traditional lump sum payment with a fixed interest monthly amortized repayment schedule that's known as a home equity loan. The second, a low-pressure credit line, is called a home equity line of credit (HELOC), and lets you withdraw money at your convenience and repay with a variable interest rate.

Both variants give you access to the value that you've accumulated in your home. Also, 2nd mortgage rates tend to have lower interest rates and more convenient repayment options than unsecured loans or credit cards. They also share some tax benefits that make them even more affordable.

Lending a helping hand

Second mortgages can be used to meet many real-world needs. They are at their best when used to cover home improvement costs, because every dollar of interest paid is generally tax-deductible. They are also popular for paying college costs beyond what financial aid can cover, for financing large purchases like cars and boats, and for letting people enjoy their retirement at the expense of equity in their homes. A HELOC can even be a great alternative to an emergency fund, for those unexpected bumps on the road of life.

Regardless of why you need some extra cash, your home can give you a boost right now. That second mortgage can even help repair a damaged credit history, as long as you make your payments on time. Over the years, you've taken good care of your house; maybe it's now time for your house to take care of you.