Second Mortgage
What Does Second Mortgage Mean?
A second mortgage is a loan secured against a home that already has an existing mortgage.
Homeowners often use second mortgages to access cash for significant expenses, such as college tuition. In some cases, individuals opt for a second mortgage as an alternative to purchasing mortgage insurance for their primary loan.
Insuranceopedia Explains Second Mortgage
Second mortgages typically come with higher interest rates than primary mortgages. This is because, in the event of a default and home foreclosure, the proceeds from the asset’s liquidation are used to pay off the primary mortgage first, with any remaining funds going toward the second mortgage. Since second mortgage lenders are less likely to recover the full loan amount, they take on greater risk, which is reflected in higher interest rates.
Despite this, second mortgages can be a valuable financing option for expenses that might otherwise be unaffordable. They also serve as a viable alternative to costly private mortgage insurance.
