What Is A Second Mortgage and Its Benefits?

When you get a second mortgage, you use your home as collateral to gain access to cash locked up in the value of your home.
May 05, 2021

A second mortgage (sometimes just called a "second") is when you take out a home loan against a property that already has a mortgage on it. When you get a second mortgage, you use your home as collateral to gain access to cash locked up in the value of your home. 

You can use this money to pay for nearly anything, which is why many homeowners apply for a second mortgage. 

Types of Second Mortgages

Home Equity Loan

With a home equity loan, you get your money in one lump sum. You then pay back what you borrowed over an agreed-upon term with fixed payments. This is a smart option if you know exactly how much money you need to borrow or prefer receiving all the funds at once.

Let's look at the pros and cons of a home equity loan:


  • Fixed interest rate: You'll know your monthly payments in advance, making it easier to budget repayment.

  • Lump-sum proceeds: Flexibility to use the money however you want.


  • Closing costs: Closing costs range from 2% – 5% of the total cost of the loan. There may also be appraisal and title search fees.

  • Risk: The bank may foreclose your home if you default on your home equity loan.

Home Equity Line Of Credit (HELOC)

A HELOC is like a credit card, meaning you have a set credit limit where you can borrow as much or as little as you need. However, unlike a credit card or a home equity loan, this type of second mortgage has two time periods: 

Drawing period: During this time, you can withdraw whatever amount of money you want (up to your limit), making monthly interest payments only on what you borrow.

Repayment period: Requires repayment of the principal and any interest on the amount you borrowed. Borrowing is no longer allowed at this time. 

The pros and cons of a HELOC:


  • Flexibility: Use only what you need.

  • Delayed payments: Your payments begin when you withdraw money, not sooner.


  • Variable interest: Interest rate fluctuates based on the market. This could make it challenging to budget your payments.

  • Annual fees and other costs: Some HELOCs tack on a yearly maintenance fee, an inactivity fee, a minimum withdrawal fee, or even an early termination fee.

  • Risk: A HELOC uses your home as collateral so the lender could foreclose on your home if you don't repay what you borrow.

How to Use Your Second Mortgage

  • Pay off a high-interest rate loan, potentially saving you hundreds or even thousands of dollars.

  • Fund home improvements like a kitchen remodel or adding another room to your home.

  • Fund big purchases like higher education, trade school, a vacation, or new home appliances.

  • Have the funds available in case of an emergency like the car needing repairs or a family member requiring medical treatment.

Second mortgages give you a wealth of options for using the money and how to repay it. Contact us today for more information and to quickly get access to your home equity.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.