Information About Second Mortgages

Filed under: HELOC, Market Comentary

In my last blog article, I provided information on Home Equity Lines of Credit (HELOC).  Sometimes, however, that can be referred to by a different name.  Many homeowners have heard the term “second mortgage,” but not everyone knows exactly what it is or what it means. Often, a second mortgage is a HELOC and sometimes is it a fixed rate second loan.  It’s important for borrowers to understand the difference and know which type of loan they have or are applying for.

A recent article in U.S. News & World Report by Geoff Williams explains that a second second mortgagemortgage is what it says: a second mortgage on your existing home. If you take out a second mortgage on your home, you are borrowing money using your home’s equity as collateral.

According to Arvin Sahakian, co-founder of says, “The primary advantage of a second mortgage is that it allows you access to money you may not otherwise be able to obtain.”

A second mortgage is a loan with a low-interest rate. Jennifer Fredericks of Better Homes and Gardens Real Estate Preferred Living adds, “The best thing about doing this is the interest rate. It’s lower than it is for credit cards, and it’s lower than it is for student loans.”

In addition, there are other reasons homeowners take out a second mortgage, such as paying off major medical bills that insurance will not cover, paying for a child’s college tuition, or to start your own business.

When purchasing a home, a second mortgage can be used to avoid mortgage insurance on your first mortgage loan.

However, there are dangers in a second mortgage. Even if the homeowner has a stable, reliable income, a second mortgage interest rate is usually variable and if/when the Federal Reserve Board raises the Prime Lending Rate, the rate on these second mortgages usually increases too (and so does the payment).

Currently, interest rates on these types of loans are alluring, but they will fluctuate with market conditions.  So while they definitely have a place in the market, borrowers need to fully understand the terms.  Second mortgages can be great if used properly, but there are potential risks.

If you have any questions about this or if you are worried about potential rate changes with your second mortgage or HELOC, give me a call and we can discuss your options.


source: from website

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