An Introduction to Second Mortgages

Steven Birdsong serves as a loan officer at West Coast Mortgage in Sacramento, California, where he works diligently to secure financing for clients. Over the course of a career that spans nearly 20 years, Steven Birdsong has arranged both first and second mortgages.

A second mortgage, also known as a home equity line of credit or home equity loan, allows a homeowner to borrow against the value that he or she has built in a property. You build equity as you pay down the balance of your mortgage, creating value that you own apart from any obligation to the bank.

You can borrow against that equity in a number of ways. The most common form involves the receipt of a lump sum, which you repay with fixed monthly payments that include interest as well as a portion of the loan balance (the principal).

A home equity line of credit, or HELOC, provides you with a set amount that you can borrow from as you need it. Your lender approves you for a maximum limit and you can continue to receive money up to that limit as long as you keep making payments according to the terms of the loan. Repayment on a HELOC also includes interest paid, and rates on these loans tend to be variable.

Second Mortgages - Lines of Credit on Homes with Existing Loans

Based in Sacramento, Steven Birdsong is a senior loan officer with West Coast Mortgage and is tasked with the origination of home loans. Knowledgeable in his profession, Steven Birdsong engages closely with clients to arrange and fulfill first and second mortgage transactions. 

Also known as a junior lien, a second mortgage involves taking out a loan using the house as collateral, in the situation when another loan on the property already exists. Home equity loans and lines of credit are basic examples of this. 

The loan may be “closed,” which involves receiving the total amount of the loan up front, with no redraws allowed. It can also be open-ended and allow cash to be taken out over time up to the maximum credit threshold. As with credit cards, as the balance is paid down, more can be drawn on the account, again up to the limit.

One thing to be aware of is that second mortgage loans typically have a higher rate of interest attached than first mortgage loans. This has to do with the risk that, in cases where not enough equity exists in the property to pay off both loans, the second mortgage loan lender may not receive the full amount owed if the borrower defaults.