Second Mortgage Loans - What Are They and How Do They Work?

by C.L. Haehl - Date: 2007-03-13 - Word Count: 293 Share This!

A second mortgage is essentially taking out a loan on your home that uses your home's equity as collateral. If you have been in your home long enough and your home as appreciated then you are able to easily take out a second mortgage. The second mortgage can also be used for anything you desire from a new kitchen to paying for your child's tuition.

There are two types of second mortgages. The first is a regular home equity loan. These loans are similar to traditional mortgages and it takes about the same amount of time to get the loan as it does a traditional mortgage. You are also required to pay closing costs on the loan as well. These loans are good if you need a lump sum of cash to pay for a large home renovation, buy a new car or to take a long awaited luxury vacation.

The second type of second mortgage available is the home equity line of credit. This is similar to that of a personal line of credit. You are allowed to borrow certain amounts of money, pay it off and then borrow more if you wish. You can open a line of credit and use it similar to that of a credit card. There is usually a maximum amount that you can borrow at one time.

Like a primary mortgage, a second mortgage is secured by the value of the home. There are several variations of these mortgages that may allow you to borrow the full value of your home or even 125% of the value of your home. These should be used wisely as you are stuck with the loan until it is paid off, which means that you cannot move until the loan is paid off.

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