Second Mortgages

If you are like most homeowners, you probably have a first mortgage loan on your home. As you make monthly mortgage payments and the value of the home increases, your interest in the property (called "equity") grows. Some homeowners may wish to borrow against the equity in their home to get cash, make home improvements, educate their children, or to consolidate personal debts. Because such loans are in addition to the first mortgage on the home, they are commonly called second mortgage loans.

Second mortgage loans are different from first mortgages in several ways. They often carry a higher interest rate, and they usually are for a shorter time, 15 years or less. In addition, they may require a large single payment at the end of the term, commonly known as a balloon payment.

Traditionally, second mortgage loans are offered with a fixed loan amount and a predetermined repayment schedule. However, lenders now also offer lines of credit that allow you to obtain cash advances with a credit card or to write cheques up to a certain credit limit. These often are called "home equity lines" because the equity in your home is collateral for the amount of credit you request. As you pay off the outstanding balance, you can reuse the line of credit during the loan period.