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 Second mortgages
A second mortgage is a loan secured by a piece of property which already has a first mortgage. The second mortgage allows the homeowner to finance a larger percentage of the home’s value, tap into his or her equity to pay for expenses such as college tuition, essential home improvements, pay off credit card balances or other pressing financial needs. Because in the case of default the lender making the second mortgage only gets paid after the first lien holder, a second mortgage is considered a riskier investment and therefore second mortgages often have higher interest rates than first mortgages. Although the rate may be higher on a second loan, the interest paid is often tax deductible.
By definition, a second mortgage is any loan that involves a second lien on the property, but generally there are two options: a home equity loan or a home equity line of credit. For both options the total combined loan amounts will be limited to a percentage of property’s appraised value. 
A home equity loan is a fixed or adjustable rate second loan that is secured by the equity in your home. With a home equity loan, you borrow a lump sum of money to be paid back monthly over a set time frame, much like a first mortgage. The terms home equity loan and second mortgage are often used interchangeably
A home equity line of credit (HELOC) is an open line of credit tied to an equity-based maximum loan amount. You may draw from the account for a set period of time (5, 10 or even 20 years) as long as there are funds available on the line. Interest-only payments are made based on the amount of the line utilized during the draw period. Once the draw period is up, you will be required to pay off the amount of the line utilized, making monthly payments on the principal and interest amortized over a set period. The interest rate on a HELOC is adjustable set to the Prime rate which can fluctuate month to month, plus or minus a set margin which does not change, making this option appealing when interest rates are low, but less attractive when interest rates increase. If you need to borrow money to consolidate debts or make a major purchase, a home equity line of credit (HELOC) can be useful.
When deciding what type of loan is best for you, it is important to consider how you will use the money and how you intend to pay it off. Do you need money in one lump sum or intermittent over several months or years? Do you want a fixed interest rate so you can repay your loan in precise monthly installments or would you rather have the flexibility to make any size payment above the interest-only minimum? In today’s lending market, there are fewer second mortgage options available. That’s why it’s more important than ever to go with a lender who has access to as many funding sources as possible.
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