As the name implies, a second mortgage loan is another mortgage against your property on which a primary mortgage exists. With a second mortgage you are able to tap into the equity that you have in your house. Equity exists when the appraised value of your property is more than the amount you owe on your first mortgage.

Second mortgage loan rates are usually higher than the rates offered for a primary mortgage. With the robust growth of the Internet you have the ability to do comparison rate shopping among different lenders before you apply for a second mortgage. Thanks to fierce competition among lenders, sometimes you can find special offers of either low fee or no fee second mortgage loans, which can significantly help in keeping down closing costs.

A second mortgage loan comes in three basic types: the traditional second mortgage, the home equity loan, or the home equity line of credit (HELOC). With the first two loans the money is paid out in one lump sum. The third loan can be paid out over a period of time and allows a borrower to choose the time and frequency of when to borrow against the equity in the property.

Second mortgage loans can be useful in certain situations to avoid paying mortgage insurance requirements on your first mortgage. Generally you need to get a second mortgage loan that makes up for 20% of the purchase price of the home for this to work. Also, second mortgages are easier and faster to get than a refinanced first mortgage because the underwriting guidelines are less strict. Most lenders allow you to take a second loan in an amount where the loan-to-value ratio of your first and second loan combined is equal to 85% of the appraised value of your home. There are even lenders in all states, excluding Texas and West Virginia, who will provide a second mortgage on 125% of the appraised value of your home.

It is good to know you have many options with second mortgage loans if you ever find yourself in financial need. A word of caution is necessary concerning second mortgage loans. If you were to default on your second mortgage, the lender can foreclose on your house and property and you would lose everything. You must be very cautious when considering a second mortgage loan to not over extend yourself to the point where you put your house in jeopardy.

With caution in mind, there are many valid reasons people take out a second mortgage on their accumulated equity. Many need to pay for college or some type of unexpected medical costs. Some may use the money to pay off balances on high interest credit cards and other bills. Some people use the cash to start a small business. Still others will use the second mortgage loan to pay for major home remodeling expenses. Whatever the reason, make sure you get sound financial advice and a second mortgage can be a good option in your arsenal of financial tools.