A second mortgage is essentially a second loan against the same property. There are two kinds of second mortgages: home equity loans and home equity lines of credit. The home owner is borrowing against the money that has already been put into the home.
A home equity loan is when a lender gives you a lump sum of money and you pay the amount back over a scheduled period of time. Usually these types of loans have a fixed interest rate. The second types of loan is called a home equity line of credit (HELOC). This type of loan allows you to borrow a certain amount until you’ve reached your limit. HELOC typically has an adjustable interest rate.
A home owner might consider taking out a second mortgage for a number of reasons. These reasons might be to consolidate debt, make improvements on the home, pay for college tuition, buy another home, or even start a business.