Home equity & rates for second mortgages: How they go together

by Jennifer Abner 09/05/2022

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For homeowners who want financing in addition to an existing loan, rates for second mortgages are high on the list of things to consider. A second mortgage allows you to borrow money against the equity you’ve built in your home. 

Here is some more important information homeowners should know about this type of financing:

What is a second mortgage?

A second mortgage is a lien placed on an asset that already has an existing mortgage. For your house, the second mortgage will function like a home equity loan or home equity line of credit (HELOC).

Just like with your regular mortgage, your loan officer may take possession of your home if you default on the loan. 

Second mortgages are often cheaper than cards because of their low rates. You can use your second mortgage money for virtually anything, which makes them a popular choice for handling debt consolidation, home improvements and medical expenses. 

How to get a second mortgage

The first step in obtaining a second mortgage is to determine your home’s equity. It’s ideal to have at least 20% equity, so the remaining loan amount doesn’t go over 80% of the home’s total value.

It’s also a good idea to check on your credit report before applying. This gives you a chance to dispute any mistakes or resolve any issues that could affect your ability to qualify for a home equity loan or credit line.

When to apply for financing

There is no hard and fast rule for the best time to get a second mortgage. It’s important to consider every possible factor, including the current interest rate and your financial situation.

Usually, borrowers follow market trends when acquiring the second loan. Mortgage rates can vary, but tracking the trends of the market will allow you to apply and receive a second mortgage when rates are low. You also want to be aware of the various fees charged by mortgage lenders and how they factor in to the total annual percentage rate (APR).

Home equity loans through second mortgages are a great way to capitalize on your home’s equity. They can help you cover expenses unrelated to your home, either through a lump sum loan or HELOC. To find out if a second mortgage will work for you, consult a financial advisor and check with your lender for details. 

About the Author

Jennifer Abner

Hi, I'm Jennifer Abner and I'd love to assist you. I'll support and guide you through the buying, selling, and relocation experience with candid advice, creative thinking, and a can-do, get-things-done spirit. My attention to detail and follow-through make the process flow smoothly for you. When I make a commitment, you know it will get done! With an easy-going manner and sense of humor, you will find that I make home buying and selling a pleasure. I strive to make people feel at ease.