What is a Second Mortgage Home Loan?

A second mortgage home loan, also called an equity home loan, is a mortgage that is in addition to, and subordinate to, your main home loan. When you have a second mortgage you will actually make two separate mortgage payments each month, one payment to your first, or primary, home loan, and the second payment to pay off your second, or equity, mortgage.

Because a second mortgage home loan, or equity loan, is subordinate to your first mortgage (which means if anything happens to your loan the first mortgage gets paid first and the second mortgage only gets paid if there are any left-over funds) the risk is higher for a second mortgage home loan and so the interest rate is higher too, to compensate for the added risk.

So what would prompt someone get a second mortgage home loan at a higher rate of interest rather than refinance their first mortgage? The most common reason is because interest rates have risen. If interest rates are currently higher than they were when you took out your first mortgage, it may be more cost effective for you not to disturb your first mortgage and to take out a second mortgage home loan.

Easy qualifying is another reason for taking out a second mortgage home loan. As a second mortgage home loan is secured by the equity in your home, equity being the difference between what your home is currently worth and the amount of your loan, it is often easier to qualify for a second mortgage home loan than it is to qualify for a new first mortgage.

Whatever the reason for taking out a second mortgage home loan, an equity loan is often the best and the simplest way for you to tap into the accumulated equity in your property, allowing you to spend or to invest your equity in any way you see fit.