Second Mortgage Definition


A second mortgage is a second lien on a property; it comes subordinate to the first mortgage and since the first lender or mortgagee holds the deed of the property, the second mortgage is considered riskier and carries much higher interest.

If you have a first and a second mortgage with two different lenders and you are punctual with payments on the first, but not on the second mortgage, you are making the wrong assumption that the second lender cannot foreclose on your property. Yes, they can and they would if you are avoiding responsibility on your second mortgage, as foreclosure is their only chance to get repaid.

A second mortgage is also used as a quick way to get cash against your equity given your home has appreciated in value. It is also used in a piggyback loan (a 80/20 or 80/10/10) as to avoid buying private mortgage insurance. The recently popularized HELs and HELOCs are very similar to a second mortgage in that they also use your house as a collateral.

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