Second Mortgage Or Equity Loan They Are Both The Same

Writen by Jeff Lakie

In the financial arena, many terms are used to explain what amounts to be the same thing. Mortgages are home loans and equity is the cash value in your home. One term that is used that sometimes causes confusion is second mortgages. No, this really isn't an additional mortgage, rather it is a equity loan that works a bit differently from your home's mortgage. Read on and I shall explain just how a second mortgage works.

When you purchase a home, the mortgage company puts a lien on your house. This means that if you default on your mortgage the mortgage company will be first one in line to get your home in the event of a foreclosure. Any other creditor with interest in your assets will be in a secondary position when it comes to having rights on your property.

In the case of a second mortgage, this type of loan is actually a home equity loan. It works this way: you have built up enough equity or cash value in your home and you decide to tap these funds for home repairs, renovations, or some other project even for your child's college education. As far as the lender goes, they have a second lien on your property but only after the lien of the primary or first mortgage holder has been satisfied in the case of a default. Thus, a home equity loan or second mortgage is a bit riskier for the second lender therefore your interest rate will probably be two to three points higher than the going rate of a fixed rate mortgage at the time that you take out the second mortgage.

In many cases, consumers may find it beneficial simply to visit the primary mortgage company and do the home equity loan through them. In that case the mortgage company has the first and second liens on the property through both the first and second mortgage. Later, if you choose, you could refinance the two loans into one loan especially if a better rate can be realized. Your original lender would be happy to do this for you, but a competing lender may have a better rate, so shop around.

In either case you can gain tax deductions through the two loans as permitted by state and federal laws. Check with a real estate or tax accountant to determine how you can maximize your home loans to your full tax advantage.

Jeff is the owner of Homeowner Loan Guide one of the Uk's leading secured loan quote providers. If you are searching for that low rate on a secured loan then visit our site today for a free no obligation quote. We provide great rates that compate to leading lenders like Abey National.