by Genevieve Adams
A second mortgage is another lien on your home.
A second mortgage allows you to access the equity in your home, which is the difference between the balance of your original mortgage and the value of your home. For instance, if your home is worth $250,000 and your mortgage balance is $200,000, you have $50,000 in home equity. When you take out any sort of mortgage, the bank files a lien against your home. This is a legal action that allows the bank to eventually take possession of your home if you default on the loan. In the case of a second mortgage, the lien is filed in "second position," meaning that the bank holding your new loan is second in line to receive proceeds from the sale of your home if you don't make your loan payments.
Second mortgages come in two basic types: home equity loans and lines of credit. If you take out a second mortgage in the form of a loan, you will receive a lump sum of money based on the equity in your home; you will
repay the money in installments over a fixed period of time. If you choose a line of credit, your second mortgage will function more like a credit card. You will have a credit limit that can be reused as you pay down the balance. The amount of money you receive from an equity loan or have access to via a line of credit will depend on how much equity is available and the lending standards of the bank. Work with your loan representative to determine how much to apply for.
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