What is a second mortgage and how does it work?

October 26 2017

You've probably heard of second mortgages. You might even be considering applying for one. But do you know exactly what they are and how they work? Keep reading to learn more about this option and see if it's right for your situation.

What is a second mortgage?
It's another mortgage where your home is used as collateral, just like with your original loan. If, for some reason, you are unable to pay your original mortgage and must sell your home to pay off debts, the second mortgage is paid off after your first one. This is why second mortgages often have higher interest rates.

Why get one?
One of the most popular reasons for taking out a second mortgage is to fund home improvements or repairs. They're typically called home equity loans or home equity lines of credit (HELOC). You must have enough equity in your home to qualify for this type of loan.

Some people apply for a second mortgage when they purchase a home to avoid paying private mortgage insurance (PMI). Most homebuyers must have at least a 20 percent down payment to avoid PMI. Taking out a first mortgage for 80 percent and a second mortgage for 20 percent is one way to waive that cost.

Should you get a second mortgage?
Just like any other financial decision, there are several factors to consider before going that route. For example, if you're considering a second mortgage to pay off existing debt, make sure you can afford the monthly payments.

If you have questions about this type of loan or would like to apply for one, please reach out. We're here to help!

Whether you are buying, selling, or refinancing, it is important to have an experienced mortgage professional to help you analyze your financing options, and make sure the closing goes smoothly. As a loan officer with Midwest Community Bank, I have the expertise and experience to get you the right mortgage, and to handle your transaction professionally. With my experience, and our rates and programs, you are sure to get the mortgage that is right for you. Please remember to get me involved early on in your home-buying process. Starting the Process not only gives you a better idea of what you can qualify for, it also gives you a stronger negotiation position when you find the home of your dreams.