A second mortgage is a home mortgage that you take out in addition to your first. It is a different arrangement from a refinance. When you refinance a mortgage, you simply take out a loan that loan replaces your existing mortgage. A second mortgage is written in addition to your first mortgage so you have two payments instead of just one.
How Does it Work?
A second mortgage functions as a lien against your home for the amount of the second mortgage. You still owe whatever you had left on your first mortgage. The bank merely writes you another mortgage and, because it is secured by your home, it usually has good interest rates. This is the reason that some people choose to go this route instead of refinancing. Refinancing sometimes increases the interest rate on the mortgage and, therefore, a second mortgage is sometimes preferable.
What is it Used For?
A second mortgage is oftentimes used in the same fashion as a cash out refinance. Typical things people use 2nd mortgages for include:
- Paying off undesirable loans, such as credit card debt, and replace those debts with the superior interest rates available on the mortgage loan.
- Property improvements or other expenses that will increase the value of their home over time.
- Trips, vacations, tuition and other short term cash needs
Two Loans Instead of One
A second mortgage is a separate lending product that you’ll have to make payments on. It’s not a part of your regular mortgage, so that may make your monthly finances a bit more complex.
A second mortgage is also tougher to qualify for than a refinance. The second mortgage will also have its own interest rates and so forth, so you’ll have to take this into account when you’re taking out the loan.
Getting a Second Mortgage
Talk to a loan officer at NOLA Lending today to see if you qualify for a second mortgage. If this isn’t an option for you, you may want to consider a refinance, which is much more common these days. Second mortgages were more common in the past than they are today and, because of the convenience and wider availability of refinancing options, most owners go for that type of funding.