A Second Mortgage

Is a Separate Mortgage, Behind Your Existing First Mortgage.

This can be in the form of a Home Equity Line of Credit (often referred to as a HELOC) or a fixed payment mortgage. In some cases, it may not make sense to break the first mortgage and instead setup a second mortgage for the funds required. In most cases, a second mortgage will be priced higher than a first due to the added risk of being in second position. Something else to consider is that most lenders that allow a second mortgage or HELOC will only do so if they hold the first mortgage. Again, this is due to the risk factor.

If setting up a fixed payment second mortgage, having an exit strategy is important. Since the costs are higher, you don’t want to have it any longer than is necessary. For example, the plan could be to setup a second mortgage to address whatever is needed, then combine it with the first mortgage if renewing soon. Or, if something is required to be paid out prior to refinancing, a second mortgage may be useful to allow for this, so that the refinance can then take place.