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What is a Second Mortgage (Home Equity Loan), and how is it different than a Home Equity Line of Credit (HELOC)?
Second mortgages or home equity loans are loans used to borrow money against the equity in your home without affecting your primary mortgage. A “second” mortgage is subordinate to your first mortgage, meaning if you default on your mortgage payments and your home is foreclosed upon, your first mortgage lender would be paid off before your second mortgage lender.
The main difference between is that a Home Equity Line of Credit (HELOC) is a variable-rate loan in the form of a line of credit. In contrast, a home equity loan is a lump sum loan with a fixed interest rate.
What does taking out a second mortgage mean?
Taking out a second mortgage means using your home equity as collateral to borrow money, similar to your primary mortgage. It is a separate loan, independent of the first mortgage, secured by the property. When you take out a second mortgage, you will have two loans secured by your property, with the second mortgage typically having a subordinate position to the first mortgage, hence the term “second.”
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