If you own a home, you might be wondering what is the difference between first and second mortgages. In short, a first mortgage is the primary loan that you take out to purchase a home. You go to a lender, take out a loan (mortgage) to pay for the home. Your property is the collateral in this scenario. You must repay the loan (mortgage) in monthly installments over an agreed upon term (10, 15, 20, or 30 years). As you make your scheduled monthly payments, you gain equity in your home. (The difference between your home’s current market value and any remaining mortgage payments is called home equity.)
A second mortgage is a separate loan that you take out (in addition to your first mortgage). You can borrow on the equity in your home up to certain percentage, usually 80% of the value of your home, including your first mortgage balance. (Example: Your home is worth $100,000 and you owe $60,000 on your first mortgage. You could borrow up to $20,000 on a second mortgage ($100,000 x 80% = $80,000 – $60,000 = $20,000.) Second mortgages are usually used to finance home improvements or to cover other costs associated with buying a home.
Some people use a HELOC as a second mortgage. Learn more about that here.
If you were unable to make payments and the mortgage were to default, the first mortgage would receive all liquidation proceeds. The second mortgage would only receive payments once the first mortgage were paid off.
Requirements to get a second mortgage usually include:
Contact our friendly team to learn if you qualify.