second mortgage

n.
A mortgage taken out on property that already has one mortgage, with priority in settlement of claims given to the earlier mortgage.

View more Business & Finance videos

Mortgage that is subordinate to the lien created by a First Mortgage, but senior to subsequent liens. Sometimes called a second trust, a second mortgage normally has a repayment term much shorter than a first mortgage, a fixed amortization schedule, and may have a balloon payment. The holder of a second mortgage has rights secondary to the holder of a first mortgage lien in event of foreclosure. In a second mortgage, interest due is computed on the entire principal balance owed, which is advanced to the borrower after the required three-day rescission period. A second mortgage is, in effect, an installment loan secured by the borrower's real estate, and technically, a Closed-End Credit arrangement with a predetermined repayment table or Amortization Schedule. Contrast with Home Equity Credit.

Second mortgages are used for a variety of borrowing needs, including home improvement, investment in a business, and raising cash. Second mortgages also are commonly used to make a smaller down payment in a first mortgage if taken out when a home is purchased. See also Right of Rescission.

A subordinated lien, created by a mortgage loan, over the amount of a first mortgage. Second mortgages are used at purchase to reduce the amount of a cash down payment or in refinancing to raise cash for any purpose.
See subordination.


Example: A house costs $300,000. Available financing is a mortgage loan covering 80% of value, or $240,000. The required cash down payment is $60,000. A second mortgage is available for an additional $30,000 of value, reducing the down payment to $30,000. The second mortgage will generally carry a higher interest rate than the first mortgage to reflect the inferior position and greater risk of the second mortgage. For tax purposes, interest paid on a mortgage used to acquire a personal residence is deductible on a principal amount only up to $1,000,000. Interest attributable to acqusition debt in excess of $1,000,000 is not deductible.
Interest paid on up to $100,000 of equity loans is deductible.

Previous:	Second Home, Seasoned Loan
Next:	Secondary Mortgage Market, Section (of land)

A mortgage without intervening liens between it and the first mortgage, 97 Pa. 342, 347; one which does not contemplate a mortgage on a buyer’s interest in a land contract, 425 P. 2d 891, 894.

A type of subordinate mortgage made while an original mortgage is still in effect. In the event of default, the original mortgage would receive all proceeds from the liquidation of the property until it is all paid off. Since the second mortgage would receive repayments only when the first mortgage has been paid off, the interest rate charged for the second mortgage tends to be higher and the amount borrowed will be lower than for the first mortgage.

Investopedia Says:
Since the first mortgage is used as a loan for buying the property, many people use second mortgages as loans for large expenditures that may be very difficult to finance. For example, people may take on a second mortgage to fund a child's college education, or to purchase a new vehicle. Second mortgages also can be a method to consolidate debt by using the money from the second mortgage to pay off other sources of outstanding debt, which may have carried even higher interest rates.

Related Links:
It's possible to use a second mortgage to avoid this fee, but is it in your best interest? How To Outsmart Private Mortgage Insurance
This may be the biggest debt you'll ever incur. Learn why you should retire it sooner rather than later. Paying Off Your Mortgage
Learn how the various reasons for doing it can mean the difference between financial prudence and ruin. Mortgages: The ABCs Of Refinancing
Hope Now was formed to help prevent foreclosures. Are the organization's strengths enough to overpower its weaknesses? Battling Foreclosure: The HOPE NOW Alliance Strategy

For a list of words related to second mortgage, see:

• Mortgages and Financing - second mortgage: mortgage taken by third party on property already mortgaged

---

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)