Getting a second mortgage is a good way to get the money you need in a short time, but it should be a prudent decision. With a second mortgage, you put your house into a riskier situation and the second mortgage lender takes more risk as well.

What Is Second Mortgage
Second mortgage is a loan guaranteed by the property against which a first mortgage has been secured. The amount of the second mortgage depends on the difference between the current value of the assets and the loan amount you still owe on it.

It is junior in position compared with the first mortgage. If there is any default, the first mortgage has priority over the second mortgage. That is to say, before paying off the first mortgage, the borrower can’t pay off the second mortgage. In this circumstance, the lender of the second mortgage takes more risks. As a result, the second mortgage rate is higher than that of the first mortgage. But compared with other alternative sources like the credit cards, the rate is lower. The rate can be divided into fixed rate and adjustable rate in general. For an adjustable rate, one must check the contract carefully and make it clear that who has the initiative to adjust the rate. And if it is the lender, one should know whether there are limits to the payment or the interest rate.

The longest term of second mortgage can up to 30 years and the shortest comes with only one year. The payment changes with the length of the term. Usually, the shorter the term is, the higher the payment is.

Choose One of the Two Types
There are mainly two types of second mortgages. They are home equity lines of credit and the more traditional home equity loan. Which to choose depends on your actual demand.

Home equity line of credit has a shorter term with an adjustable rate, which is based on an index, such as the prime rate. And the rate is usually lower than the first mortgage rate. The rate may be higher at refinance if one runs up the balance of a home equity line.

The more traditional home equity loan is fixed-rate loan with a long term, typically in lengths of 15 and 30 years, so the rate is higher than the first mortgage rate. There is no refinance risk of this type of loan, as a zero balance is applied during the term of the loan.

How to Use the Second Mortgage
Nobody bothers to risk his property with a second mortgage. There must be some objective reasons for doing so. Second mortgage can be used to improve the house, consolidate other debts, avoid Private Mortgage Insurance and college education, etc. The way to use the second mortgage helps you to decide which type of second mortgage is more suitable for you.