Second Mortgage
A loan secured by a property that already carries a primary mortgage, in a subordinate lien position.
What is Second Mortgage?
A second mortgage is a loan secured by real estate that already has a primary (first) mortgage, with the second mortgage lender holding a subordinate lien position. This means that in the event of foreclosure, the first mortgage lender is paid in full from property sale proceeds before the second mortgage lender receives anything. Because of this higher risk, second mortgages typically carry higher interest rates than first mortgages. Common forms include home equity loans (fixed-rate, lump-sum second mortgages) and home equity lines of credit (HELOCs). Second mortgages allow homeowners to access the equity they have built in their property without refinancing the first mortgage. The combined loan-to-value (CLTV) ratio—first mortgage plus second mortgage divided by property value—is used by lenders to assess total leverage.
Example
A homeowner with a $250,000 first mortgage on a $450,000 home has $200,000 in equity. They take out a $60,000 home equity loan as a second mortgage to fund renovations. The CLTV is ($250,000 + $60,000) ÷ $450,000 = 69%. The second mortgage lender charges a higher rate than the first mortgage because it bears the junior lien risk.
Source: Investopedia — Second Mortgage