What is a second mortgage?

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    Jordan Moore
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    Team StellarFi
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    A second mortgage — also called a junior loan — is taken out in addition to your existing mortgage. They are also known as junior liens which are taken out against your home equity so that you don’t have to sell your house. However, a second mortgage increases your overall debt and can lead to foreclosure. In such a case, you first pay off your original loan before the second mortgage.

    You need to have a significant amount of home equity to get a second mortgage. Your home equity is the difference between your mortgage balance and home value. Based on how much this value is, you can apply for a second mortgage. 

    A second mortgage is a separate loan. It does not change your original loan or loan terms. Instead of making just one payment, you’ll be paying off both the first mortgage and the second mortgage together after securing the loan.

    There are three types of second mortgages:

    • Piggyback loan: You can take out a piggyback loan around the same time as the primary mortgage. It is also called an 80-10-10 loan and borrowers can avoid paying mortgage insurance if they combine the second mortgage for 10% and the primary mortgage for 80% of the home value.
    • Home Equity Loan (HEL): An HEL is a second mortgage that gives you a lump sum you prepay at a fixed rate and period.

    Home Equity Loan Line of Credit (HELOC): A HELOC is a second mortgage that gives you cash access based on your home value, which you borrow against your home equity. You can usually borrow up to 85% of the equity. This works like a credit card but is meant for more major expenses rather than the small purchases you usually make with your credit card.

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StellarFinance, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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