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What Is a Second Mortgage?

If you already have a mortgage on a piece of property and take out an additional loan on that same property, then you have a second mortgage. A second mortgage is generally taken out with a lender that is different than the one who gave you the first mortgage. For them, this venture can be risky.


As a second-mortgage lender, the institution will be listed second on your home loan. That means that if you stop making your payments or default on your loan and the property is repossessed, the first lender will get their money and if there’s any leftover, then the second lender will get theirs. Since a second mortgage is so risky for a lender, they often have higher interest rates.


Some reasons you may need to take out a second mortgage include needing to consolidate debt. Despite the fact that the interest rate will be higher than the rate on your primary loan, it may still be lower than credit cards or unsecured lines of credit. Using a second mortgage to consolidate debt could be a good way to improve your credit score. With an improved credit score, the world is your oyster and you’ll be able to get loans with prime lenders.


There are four areas that a lender will look at to see if you qualify for a second mortgage. These include the following:



How much do you have? The more you have, the better chance you have of getting a second mortgage.



Do you have a dependable source of income? You’ll need one so that lenders will know that you’ll be able to make your payments.


Credit Score

How high is your credit score? The higher your score is, the lower your interest rate will be. Having a low score may not disqualify you from getting a second mortgage, but it could impact the amount and the interest rate on the loan.



If you have a low credit score, lenders will look at your property and how it’s valued. They aren’t in the business of charity, and they’ll want to make sure they get their money back if you default on your loan, and that could include taking your property—and not just the one you’re getting the second mortgage for.

How you use your second mortgage will be up to you. It can be a great way to consolidate debt, but you may also want to use it to make investments. Be smart about your finances and talk to a professional so you can make the best decision about getting a second mortgage.