What is a 2nd Mortgage?

A 2nd mortgage is a secured loan that is taken out after the original home loan has already been negotiated.

2nd mortgages are a common way for people to obtain a lot of money when cash or credit is tight. Money borrowed through 2nd mortgages is usually used to pay off debts, finance education, or cover big purchases such as car insurance.

When a person takes out a 2nd mortgage, he/she is risking his/her home. The home stands as collateral for the loan. If you default on your 2nd mortgage, you will lose your home. Another source of collateral is the money already paid on a primary mortgage. By making your primary mortgage payments you have proved to the lender that you are dependable and will probably be able to cover a 2nd loan.    

2nd mortgages are riskier than primary mortgages because, if a person defaults, the primary mortgage must be paid off first. Because of their inherent high risk, 2nd mortgages have higher interest rates. Also, the terms on 2nd rate mortgages are usually shorter than those on primary loans.