Second mortgage

As the name suggests, a second mortgage is the second loan on a land or real estate that is already mortgaged. Second mortgages are secondary to the first mortgage. In the event of default, a second mortgage lender can be paid only after the primary mortgage lender.

If you have a fixed rate loan mortgage, the interest rate remains the same for the entire period of the loan. However, many companies offer variable rate mortgages, also known as adjustable rate mortgages or ARMs. These offer the flexibility of periodic interest-rate adjustments.

Often the loan contract permits the mortgage company to adjust or change the interest rate. If this is the case, make sure that you know when the company has the right to change the interest rate; if there are any limits on how much the interest or payments can change, and also how frequently the company can change the rate. You also should know what basis the company will use to determine a new rate of interest.

Second mortgages terms are usually shorter than the primary term. They commonly carry a higher rate of interest, due to the inherent risk of the loan. With real estate values booming, people are resorting to second mortgages to get over their financial crisis.

Home equity loans and lines of credit are typically second mortgages. There are many reasons why people take out second mortgages. The most common, however are, freeing equity to pay off credit card loans or other high interest debts, home repairs and improvements, family issues such as marriages, tuitions, medical etc and at the same time maximizing tax benefits.