What Is a Second Mortgage?

A family stands on the driveway in front of a recently built home.

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A second mortgage is a type of loan that lets you borrow against the value of your home. Your home is used collateral. If you can't repay the second mortgage, you risk foreclosure.

Key Takeaways

  • A second mortgage is a loan that uses your home as collateral, similar to the loan you used to purchase your home.
  • Second mortgages are often used for items such as home improvement or debt consolidation.
  • Advantages of second mortgages include higher loan amounts, lower interest rates, and potential tax benefits.
  • Disadvantages of second mortgages include the risk of foreclosure, loan costs, and interest costs.

How Does a Second Mortgage Work?

A second mortgage is a loan that uses your home as collateral, similar to the loan you used to purchase your home. The loan is known as a second mortgage because your purchase loan is typically the first loan in line to be repaid if your home goes into foreclosure.

This means that if a worst-case scenario occurs where you can no longer pay your mortgage and the lender sells your home, your first mortgage would be paid first. Your second mortgage would receive any remaining funds after the first mortgage is paid.

Second mortgages tap into your home equity, which is the market value of your home less any loan balances. Equity can increase or decrease, but ideally, it grows over time.

Equity can change in a variety of ways:

  • When you make monthly payments on your loan, you reduce your loan balance, increasing your equity
  • If your home gains value because of a strong real estate market or the improvements you make to your home, your equity increases
  • You lose equity when your home loses value or when you borrow against your home


Second mortgages, which can be home equity lines of credit (HELOCs) or home equity loans, are a way to use that asset for other projects and goals without having to sell your home.

Types of Second Mortgages

A Lump Sum

A standard second mortgage is a one-time home equity loan that provides a lump sum of money that you can use for whatever you want. With that type of loan, you'll repay the loan gradually over time, often with fixed monthly payments. With each payment, you pay a portion of the interest costs and a portion of your loan balance in a process called amortization.

A Line of Credit

It's also possible to borrow using a home equity line of credit or a pool of money that you can draw from. With that type of loan, you're never required to take any money—but you have the option to do so if you want to. Your lender sets a maximum borrowing limit, and you can continue borrowing (multiple times) until you reach that maximum limit. As with a credit card, you can repay and borrow over and over. If you carry a balance, you'll have to pay interest.

Depending on the type of loan you use and your preferences, your loan might come with a fixed interest rate that helps you plan your payments for years to come. Variable-rate loans are also available and are the norm for lines of credit.

What Can a Second Mortgage Be Used For?

Down Payment

Some people use a second mortgage to cover a down payment or even closing fees that they couldn't otherwise afford. Others take out what is known as a "piggyback" second mortgage to qualify for their main mortgage and avoid paying private mortgage insurance (PMI), even if they don't have enough cash on hand to make a down payment of 20% on their home.

You might qualify for a 10% down payment, 80% of the mortgage, and 10% with a piggyback second mortgage instead of paying 10% of the home value with a down payment and 90% of the remaining value with a mortgage that requires PMI.

A second mortgage or a piggyback second mortgage both come with higher interest rates. You could also end up underwater on your loan. Making a down payment of 20% will allow you to avoid paying PMI and qualify for lower interest rates on the first mortgage. You can start your home loan on better financial footing, and can avoid the chance that you might lose your home.

Pay Off Debt

Debt consolidation is a common strategy that involves combining multiple debts into one, often a lower-interest loan. People who have built up enough equity in their homes sometimes take out a second mortgage, so they use their home equity to pay off high-interest debt, but that doesn't pay off the first debt. Some people consolidate their debts, only to find themselves in debt again within a short amount of time.

Taking out a second mortgage to pay off debts puts your home at risk because you're moving unsecured debt to your home. The lender could foreclose on your property. You could lose it if you couldn't make your payments.

Taking out an extra loan against your home could be a major risk if your home's value declines to the point that it's worth less than the mortgage. You would be underwater on your mortgage at this point. You might be more likely to default.

It's better not to tie extra debt to your home if you can avoid it. Speak with a debt settlement company instead to resolve the debt. You might consult a credit counselor to address the problems that caused you to go into debt in the first place. Think about taking out a loan from a bank instead if you decide to consolidate your debt.

Home Improvements and Education

Home improvements and renovations are a common use for second mortgage funds because the assumption is that you'll repay the loan when you sell your home with a higher sales price. You can also get a tax break for home improvements if you make capital improvements like switching to central air or adding an addition to the house, or if you make energy-efficient improvements.

You may be able to set yourself up for a higher income by using a second mortgage for education. But as with other situations, you're creating a situation where you could face foreclosure. Standard student loans might be a better option.

Pros and Cons of Second Mortgages

  • Potentially high loan amount

  • Potentially lower interest rates

  • Tax benefits when used for home improvements

  • If not repaid, you risk foreclosure

  • Costs and fees required

  • More debt and interest to repay

Pros Explained

Potentially High Loan Amount

Second mortgages allow you to borrow significant amounts. Because the loan is secured by your home (which is usually worth a lot of money), you have access to more than you could get without using your home as collateral. How much can you borrow? It depends on your lender, but you might be able to borrow up to 80% of your home’s value. That maximum would count all of your home loans, including first and second mortgages.

Potentially Lower Interest Rates

Second mortgages often have lower interest rates than other types of debt. Again, securing the loan with your home helps you because it reduces the risk for your lender. Because the loans are lower-risk, lenders offer lower rates on second mortgages than unsecured personal loans like credit cards.

Tax Benefits If Used for Home Improvements

In some cases, you'll be able to get a tax deduction for using a second mortgage to "buy, build, or substantially improve your home," according to the IRS. There are some technicalities to be aware of, so ask your tax preparer before you start taking deductions.

Cons Explained

If Not Repaid, You Risk of Foreclosure

One of the biggest problems with a second mortgage is that you have to put your home on the line. If you stop making payments, your lender will be able to take your home through foreclosure, which can cause serious problems for you and your family. For that reason, it rarely makes sense to use a second mortgage for "current consumption" costs. For entertainment and regular living expenses, it's just not sustainable or worth the risk to use a home equity loan or line of credit.

Costs and Fees Required

Second mortgages, like your purchase loan, can be expensive. You'll need to pay numerous costs for things like credit checks, appraisalsorigination fees, and more.

“Most of the time, a second mortgage—similar to a first mortgage—will come with closing costs,” Lauren Anastasio, a certified financial planner (CFP) with SoFi, told The Balance via email. “You could expect to pay for an appraisal, some type of application or underwriting fee, recording fees, etc. If you’re working with a different lender than the one who holds your first mortgage, you can also expect to pay an additional fee the lender will charge to be in a second lien position. This is like extra insurance for the lender if you default since the lender who holds your first mortgage will basically have first dibs on recouping their losses.”

Closing costs can easily add up to thousands of dollars. Even if you're promised a "no closing cost" loan, you're still paying—you just don't see those costs transparently.

More Debt and Interest To Pay

Any time you borrow, you're paying interest. Second mortgage rates are typically lower than credit card interest rates and unsecured loans, but they're often slightly higher than your first loan's rate. Second mortgage lenders take more risk than the lender who made your first loan. And remember, this is more debt that you'll have to repay. So now you have two mortgages to repay, which could make getting other lines of credit in the future harder.


If you stop making payments, the second mortgage lender won't get paid until the primary lender gets all of its money back.

Should You Get a Second Mortgage?

If you believe you can repay the money you borrow through a second mortgage, then it might be right for you. Second mortgages can help you with down payments and debt, but can also be used for home renovations and education.

Consider how you plan to use the funds from your loan. It's best to put that money toward something that will improve your net worth (or your home's value) in the future. That is because you'll need to repay these loans, they're risky, and they cost a lot of money.

Once you decide whether you can afford a second mortgage, take the time to plan out how you'll use the money. Home improvements may be the best option because you also get a tax break.


Beware of risky loan features like balloon payments and prepayment penalties.

How To Get a Second Mortgage

Shop around, and get quotes from at least three different sources. Be sure to include the following in your search:

You can prepare for the process by getting your documents ready. That will make the process much easier and less stressful. You'll need information like income, mortgage balance, and more. Ask the lender what they would need before you apply for the loan.


A second mortgage, like any loan, will show up on your credit report, and if it's not repaid, it could hurt your credit score.

Frequently Asked Questions (FAQs)

How hard is it to get a second mortgage?

Because your second mortgage will be subordinate to your primary home loan, your lender will likely have stricter requirements than those for your original mortgage. You might need a higher credit score, and your interest rate may be higher than your first loan (though it will still be lower than it would be for an unsecured loan). You'll also need to demonstrate that you can handle another loan payment.

How do I eliminate a second mortgage?

You have a few options if you need to get out of a second mortgage. If you've just closed on a home equity loan or line of credit, you have three days to cancel the transaction without penalty. After that, your options are to pay off the loan, refinance your second mortgage into your first mortgage, or declare bankruptcy. The latter option is a last resort, and only certain circumstances with Chapter 7 and Chapter 13 bankruptcies will remove your obligation to pay the debt on a second mortgage. Be sure to discuss your options with a lawyer before you pursue bankruptcy.

What is the difference between a home equity loan and a second mortgage?

A home equity loan is one type of second mortgage, which is any loan secured by your home equity that's subsidiary to your primary mortgage.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Consumer Financial Protection Bureau. "What Is a Second Mortgage Loan or 'Junior-Lien'?"

  2. Consumer Financial Protection Bureau. "What Is a Home Equity Loan?"

  3. Federal Trade Commission Consumer Advice. "Home Equity Loans and Credit Lines - Home Equity Loans."

  4. Federal Trade Commission Consumer Advice. "Home Equity Loans and Credit Lines - Home Equity Lines of Credit."

  5. FDIC. "Down Payment and Closing Cost Assistance." Page 1.

  6. Consumer Financial Protection Bureau. "What Is a 'Piggyback' Second Mortgage?"

  7. Indiana University School of Public and Environmental Affairs. "Bailing out Underwater Mortgages." Page 1.

  8. Federal Trade Commission. "Coping With Debt."

  9. IRS. "Publication 523, Selling Your Home."

  10. IRS. "Publication 530, Tax Information for Homeowners."

  11. Consumer Financial Protection Bureau. "What Is a Second Mortgage Loan or 'Junior-Lien'?"

  12. Consumer Financial Protection Bureau. "Is There Such a Thing as a No-Cost or No-Closing Loan or Refinancing?"

  13. Consumer Financial Protection Bureau. "§ 1026.23 Right of Rescission."

  14. United States Courts. "Chapter 13 - Bankruptcy Basics."

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