As a homeowner, you can take multiple loans with your property as collateral. A second mortgage is the second loan you take against your home. The main difference between a first mortgage and a second one is that if you default, then the first mortgage is given priority. The proceeds from foreclosure would be paid towards the first mortgage and only the remaining amount will be accessible to the second lender. The lender providing such a mortgage is making a risky investment, which is the reason why interest rates on second mortgages are higher.
A second mortgage is often taken out for emergency expenses such as medical bills and college fees, home renovations or payment of other debt. Even though the interest rate is usually high on this mortgage, many lenders offer reasonable rates to encourage home owners to use the equity built up in their homes. You can also approach credit unions for lower rates.
Compare the rates offered by different lenders before you take out a new mortgage. You can approach the same lender from whom you have taken the first mortgage and negotiate the rates for a second one. If you have a good credit history, your lender may offer you a good deal. Make sure that the Annual Percentage Rate (APR) is at a level that you are comfortable with.
Don’t hesitate to take a second loan against your home if you have some very important expenses to take care of. Remember that the interest rates on second mortgages will be lower than those on credit cards and personal loans.
