Second Mortgages

A second mortgage is an additional loan secured by the same piece of property that secured your original mortgage. The two most popular types of second mortgages are home equity loans and 80/10/10 loans.

A home equity loan enables you to borrow against the equity that you’ve built up in their property over time. Many homeowners use home equity loans as an alternative to refinancing, since they provide you with a lump sum of cash right away, as opposed to the gradual savings that refinancing typically provides. Home equity loans are structured as either traditional amortizing loans or as lines of credit that you can draw on and then pay back as needed. In both cases, the interest that you pay on a home equity loan is usually 100% tax deductible. A home equity loan, however, usually has higher rates than those of the original mortgage.

An 80/10/10 loan is a second mortgage that you apply for at the same time that you apply for your actual mortgage. Borrowers who can’t afford a full 20% down payment often use these loans in order to avoid having to pay for private mortgage insurance. These loans are called “80/10/10” loans because typically the first mortgage covers 80% of the purchase price, the second mortgage covers 10%, and the final 10% is the buyer’s cash down payment. Generally, it makes sense to use an 80/10/10 loan only if you absolutely cannot afford a 20% down payment or if the cost of private mortgage insurance would significantly exceed that of a 80/10/10 loan, including all costs.