2nd Mortgage Residential

When most people purchase a home or property, they take out a home loan from a lending institution which uses the property as collateral. This home loan is called a mortgage, or more specifically, a first mortgage. The borrower is required to repay the loan in monthly installments made up of a portion of the principal amount and interest payments. Over time, as the home owner makes good on his monthly payments, the value of the home also appreciates economically. The difference between the current market value of the home and any remaining mortgage payments is called home equity.
A home owner may decide to borrow against his home equity to fund other projects or expenditures. The loan he takes out against his home equity is known as a second mortgage, as he already has an outstanding first mortgage. The second mortgage is a lump sum of payment made out to the borrower at the beginning of the loan. Like first mortgages, second mortgages must be repaid over a specified term at a fixed or variable interest rate, depending on the loan agreement signed with the lender. The loan must be paid off first before the borrower can take on another mortgage against his home equity.
Some borrowers use a home equity line of credit (HELOC) as a second mortgage. A HELOC is a revolving line of credit that is guaranteed by the equity in the home. The HELOC account is structured like a credit card account in that you can only borrow up to a pre-determined amount and make monthly payments on the account dependent on how much you currently owe on the loan. As the balance of the loan increases, so will the payments. However, the interest rates on a HELOC and second mortgages in general are lower than interest rates on credit cards and unsecured debt.

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