Second mortgage
A second mortgage is nothing more than a secured loan or mortgage that is subordinate to another loan on the same property. In real estate, a property can have more than one loan against it. The loan which is registered with county or city registry first is called the first mortgage. The loan registered second is called the second mortgage. A property can have a third or even fourth mortgage, but those are not common. It is exciting to think that one can now use one's house to raise money. A second mortgage is called subordinate because, if the loan goes into default, the first mortgage gets paid off first before the second mortgage gets any money.
Thus, second mortgages are riskier for the lender, who generally charges a higher interest rate. Lets say you have a mortgage on your home and the opportunity of buying a new business arises. You need money urgently in order to buy the business. You have some options. You can go to your bank for a loan, you can try your family and friends or you can apply for a second mortgage on your house. This is also called refinancing. In essence, a second mortgage or other type of loan can lower the monthly payments owed on the loan either by changing the loan to a lower interest rate, or by extending the period of loan, so as to spread the re-payment out over a long period of time. The money saved can be used to pay down the principal of the loan, thus further reducing payments. Alternately, refinancing can be used to transform available equity in one's house into ready cash, available for other purposes or expenses. Another use of a second mortgage is to reduce the risk associated with an existing loan. Interest rates on adjustable-rate loans and mortgages shift up and down based on the movements of the various prime rates used to calculate them. By refinancing an adjustable-rate mortgage into a fixed-rate one, the risk of interest rates increasing dramatically is removed, thus ensuring a steady interest rate over time. A second mortgage can assist in paying off high-interest debt such as credit card debt, with lower-interest debt such as that of a fixed-rate home mortgage. The net savings between the two interest rates can then be applied either towards further paying down the debt, or other purposes.