Home equity & rates for second mortgages: How they go together

by Bob Hummer 04/09/2024

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For homeowners who want financing in addition to an existing loan, rates for second mortgages are high on the list of things to consider. A second mortgage allows you to borrow money against the equity you’ve built in your home. 

Here is some more important information homeowners should know about this type of financing:

What is a second mortgage?

A second mortgage is a lien placed on an asset that already has an existing mortgage. For your house, the second mortgage will function like a home equity loan or home equity line of credit (HELOC).

Just like with your regular mortgage, your loan officer may take possession of your home if you default on the loan. 

Second mortgages are often cheaper than cards because of their low rates. You can use your second mortgage money for virtually anything, which makes them a popular choice for handling debt consolidation, home improvements and medical expenses. 

How to get a second mortgage

The first step in obtaining a second mortgage is to determine your home’s equity. It’s ideal to have at least 20% equity, so the remaining loan amount doesn’t go over 80% of the home’s total value.

It’s also a good idea to check on your credit report before applying. This gives you a chance to dispute any mistakes or resolve any issues that could affect your ability to qualify for a home equity loan or credit line.

When to apply for financing

There is no hard and fast rule for the best time to get a second mortgage. It’s important to consider every possible factor, including the current interest rate and your financial situation.

Usually, borrowers follow market trends when acquiring the second loan. Mortgage rates can vary, but tracking the trends of the market will allow you to apply and receive a second mortgage when rates are low. You also want to be aware of the various fees charged by mortgage lenders and how they factor in to the total annual percentage rate (APR).

Home equity loans through second mortgages are a great way to capitalize on your home’s equity. They can help you cover expenses unrelated to your home, either through a lump sum loan or HELOC. To find out if a second mortgage will work for you, consult a financial advisor and check with your lender for details. 

About the Author

Bob Hummer

Bob Hummer brings a wealth of experience with him; a practitioner in real estate in Northern Virginia since 1978, a Life Member of both the Million Dollar Sales Club and the Top Producers Club with over 2,500 Satisfied Families and President, Prince William Association of REALTORS in 1991. His experiences range from helping buyers and sellers attain their goals; to renovating historic homes on Capitol Hill; to counseling and assisting homeowners facing the loss of their home due to foreclosure. Since 1996, he has presented his free monthly Home Buyer and Home Seller seminars at the Woodbridge campus of Strayer University. In June 2023 he completed the Certified Probate Real Estate Specialist course and was awarded the designation CPRES. His goal is to assist individuals who inherited real estate and wish to sell. A former "Military Brat" and a retired Air Force Hospital Administrator, Bob has made more than 26 moves during his life and is extremely familiar with all aspects of a family relocating - whether it is across the street or across the nation.