Second Mortgage FAQ's

Get straight answers to your 2nd mortgage loan program questions.

If you don't see the answer to your second mortgage question, just contact a mortgage loan specialists -- or contact our site. We'll be happy to answer your questions!

What is a second mortgage?
How much can I borrow using a second mortgage loan program?
Are 125% loan-to-value 2nd mortgages still available?
How do second mortgage rates compare to 1st mortgage interest rates?
What are the credit qualification requirements for taking out a second mortgage?
Do I have to occupy my home to get a second mortgage?
How does a second mortgage affect my first mortgage?
Can I change my mind about a second mortgage after I have closed?
What 2nd mortgage program options do I have available to me?
What are the repayment terms of a second mortgage?
What are the closing costs associated with taking out a 2nd mortgage?

What is a second mortgage?
Not much different than a 1st mortgage, a second mortgage is a lien on a home that is secondary to an existing lien. When considering a second mortgage application, lenders take into account local market conditions and the existing equity in the home, along with other credit and income qualifying factors. Second mortgage programs can include fixed and adjustable rate versions and come with interest only periods, along with having fully amortized repayments. Types of second mortgage products include home equity loans and home equity lines of credit. These funds can be used for cash-out, debt consolidation, and home improvements.

How much can I borrow using a second mortgage loan program?
How much you can borrow using a second mortgage is really based upon market conditions. Like 1st mortgage products, second mortgage loans are bundled and sold in the secondary markets. So, the programs being offered are ultimately dependent upon what investors are willing to purchase. The traditional second mortgage program will allow you to borrow from 95% to 100% of available equity, less the costs/fees for closing the loan. Naturally, other factors such as credit and income can play a role in just how much you can borrow against your home. To get an idea of how much you can borrow, subtract your 1st mortgage balance from how much your home is worth. If you are in a market where home prices are falling, look for comparison sales data using your local county tax appraiser's website.

Are 125% loan-to-value 2nd mortgages still available?
At this time, 125% second mortgages are available in all but three states. However, the program availability in any state is subject to changes in regulation and subject to investors being willing to purchase these securities in the secondary markets.

How do second mortgage rates compare to 1st mortgage interest rates?
Due to the higher risk of a second mortgage, interest rates tend to be 2% to 5% above published market rates for 1st mortgage products. In some instances the spread can be even higher, based upon secondary market factors necessary to attract investors who buy mortgage-backed securities. The interest rate available for a second mortgage program will also factor whether it's fixed or adjustable rate, the total loan-to-value, the type of property, credit score factors, and debt ratios, among other important criteria.

What are the credit qualification requirements for taking out a second mortgage?
Today, credit qualifications for getting an approval factor your credit scores first. Next, these scores are then factored against loan-to-value (LTV) and income. For higher LTVs, you'll need to have excellent credit. The lower the LTV, the lower the risk to the lender, and the lower the credit score requirements will be.

Do I have to occupy my home to get a second mortgage?
If applying for a second mortgage, or 1st mortgage, you are required to disclose whether or not you will be occupying the residence as a primary, second home, or investment property. The reason for this is that investment properties have higher restrictions in LTV and higher interest rates. You don't need to occupy the home to qualify for a second mortgage, but the terms available to you will reflect the non owner-occupied status of the home. If you rent out your second home, it is treated as an investment property.

How does a second mortgage affect my first mortgage?
Taking out a second mortgage has no impact on the terms, interest rate, or monthly payment of your first mortgage. The most important impact for you when taking out a second mortgage comes into play if you decide at a later date that you want to refinance your first mortgage. In order to refinance your 1st mortgage, you will either have to payoff your second mortgage, or your second mortgage lien holder will have to agree to subordinate their lien to the new 1st mortgage holder.

Can I change my mind about a second mortgage after I have closed?
Yes. Whether you are refinancing a first mortgage or taking out a second mortgage, you have a three day right of rescission period by law. If you're unsure about the decision you've made, we don't recommend you wait until the third day to change you mind.

What 2nd mortgage program options do I have available to me?
You have two different options with a second mortgage. A fully-amortized installment loan, whereby you are making both principal and interest payments for a fixed period of time, and a home equity line -- which is similar to a revolving line of credit, where typically your monthly payments are interest only and tied to an adjustable rate. With a HELOC, you can pay down and take out additional funds on a regular basis up to the maximum credit line amount for the first ten years, after which, you will begin making fully-amortized payments over the next 10 or 15 years, dependent upon the terms.

What are the repayment terms of a second mortgage?
The repayment terms of a second mortgage will depend upon the type of second you choose. The can range from 10 years to 25 years, and can include fixed installment periods, balloon notes, and revolving terms that convert to installment after a set period.

What are the closing costs associated with taking out a 2nd mortgage?
The closing costs associated with a second mortgage will depend upon the type of program you select. A traditional fixed rate mortgage with a set installment period tends to have a higher upfront cost, due to the nature of the fixed interest rate. Home equity lines of credit have a lower cost to close in the short term, but have a much higher cost to consumers in the long run, due to the nature of the adjustable rate they come with.