How to Utilize Home Equity in Order to Take Out a Second Mortgage

Rohan Mathew


A second mortgage serves as a lien that is taken out against a home that has a property loan on it. If you default on your property, then the financial institution that provided you with the loan will be able to seize your home. 

You can use the money that you’ve received for virtually anything. The interest rates that you will need to pay will also be significantly lower than the rates that are charged for most credit cards. 

In fact, you can use the money in order to pay off your credit card debts faster. Here, we will focus on how you should utilize home equity in order to take out a second mortgage.

Types of Second Mortgage Loans

A home equity loan should be seen as a cash-out refinance. You will be able to obtain a lump-sum amount of money by tapping into your home’s equity. Your second mortgage provider will essentially provide you with a percentage of your equity in the form of cash. 

Your lender will receive a second lien on your home in return for the lump-sum payment that they’ve issued. You will be required to pay back the loan in monthly installments, while also paying interest on the loan, similar to your first mortgage.

A home equity line of credit (HELOC) will not provide you with a single lump-sum payment. They function in a manner similar to your credit card. You will be approved for a line of credit by your lender based on the amount of equity that you possess in your property. You will then be provided with the option to borrow against the credit that your provider has extended to you.

Your lender may provide you with a credit card or special checks so that you can make purchases if needed. It should also be noted that HELOCs use a revolving balance, which is similar to conventional credit cards.

You will be able to utilize the money on your line many times, as long as you repay the amount in full.

Using Home Equity for Taking Out a Second Mortgage

Paying your mortgage off over time can help build equity on your property. The equity that you build will help your home appreciate in value over time. 

Some people will use their home equity in order to consolidate their debts. Others may use the money that they receive to go on a vacation or renovate their homes in order to increase their value on the market.

You can calculate the amount of equity that you have accumulated over the years by subtracting the amount left on your mortgage from the current market value of your home.

Benefits of Getting a Second Mortgage

A second mortgage will usually mean a higher loan amount. In fact, some lenders may allow you to take up to 90% of your property’s equity when you take out a second mortgage.

The interest rates also tend to be much lower than the interest rates that you will be charged on your credit cards. It is important to realize that a second mortgage is a secured form of debt. Your home will serve as collateral in the event that you are unable to pay back your loan. 

The risk incurred by your lender, therefore, will be much lower when compared to credit card debt, as credit card debts are unsecured.

There are also no limits in terms of fund usage when you obtain a second mortgage. You can use the money that you receive for virtually anything that you desire, including paying off your student loans or paying for a lavish wedding.

You may also be able to enjoy certain tax benefits when you get a second mortgage, although rules and regulations, as well as tax benefits and exemptions, will vary depending on where you reside.

There are a myriad of second mortgage benefits that can help make your life easier in the long run.

Taking the First Step

Second mortgages can help you repay your loans and can also increase your net worth. You can use your second mortgage in order to consolidate your debts so that you can pay off your debts quicker and in a more convenient manner.

Some people will use their second mortgage in order to pay off their student loans or the loans of their children. Others may opt to use the funds received in order to fully renovate their homes so that they can live in opulence.

You can also receive a second mortgage from many different sources, including, but not limited to, a mortgage broker, a bank, or even an online lender if needed.

While second mortgages are not for everybody, they can help you get out of a financial bind and may make your life a little easier going forward.