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Definition of 'Second Mortgage'
A type of subordinate mortgage made while an original mortgage is still in effect. In the event of default, the original mortgage would receive all proceeds from the liquidation of the property until it is all paid off. Since the second mortgage would receive repayments only when the first mortgage has been paid off, the interest rate charged for the second mortgage tends to be higher and the amount borrowed will be lower than for the first mortgage.
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Investopedia explains 'Second Mortgage'
Since the first mortgage is used as a loan for buying the property, many people use second mortgages as loans for large expenditures that may be very difficult to finance. For example, people may take on a second mortgage to fund a child's college education, or to purchase a new vehicle. Second mortgages also can be a method to consolidate debt by using the money from the second mortgage to pay off other sources of outstanding debt, which may have carried even higher interest rates.
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It's possible to use a second mortgage to avoid this fee, but is it in your best interest?
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Buying a home may be the biggest debt you'll ever incur. Learn why you should retire it sooner, rather than later.
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There are both good and bad reasons to refinance. Learn more about both here.
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