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Second Mortgage

Written by Rachel Arieff
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A second mortgage is a loan that you take out on home you already have mortgaged. People often take out second mortgages when they need extra funds. With the home equity you've established, you can then raise those extra funds that you need.

Perhaps your home is in dire need of improvements, but you just don't have the extra cash. Maybe your child is going off to college, and, like most parents, you can't afford to pay out of your pocket the rising tuition costs. Perhaps you need capital to start a new business. These are all common reasons for taking out a second mortgage.

How A Second Mortgage Works

A second mortgage works by acting as a secured loan on your home, using your home as collateral. This is not a good option for people who are at risk of missing the larger monthly payments, as it puts them in the position of losing their home if they default. However, for those who can handle the payments, it is an good option for obtaining extra spending power.

Second mortgages carry a higher interest rate than first home mortgage loans. Their interest rates, however, are less than that of an unsecured loan. Finally, depending upon your home's value, second mortgages allow you to borrow larger amounts of money than conventional loans.


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