Second Mortgage

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A second mortgage is a loan taken out by a property owner using the property as collateral. A second mortgage loan is sometimes used to reduce the size of the down payment on the property. For example, if the required down payment is $20,000, the owner might be unable to afford the full amount, so he takes out a second mortgage to help pay for it. The lender of the second mortgage usually has lower priority as a creditor than the primary mortgage lender if the property owner defaults. Because of this, the interest rate is usually higher for the second mortgage to compensate the second mortgage lender for that increased risk. Money from a second mortgage can also be used for home improvements or just to get some cash. While it can be a useful thing, it does put the property owner deeper in debt, having now taken on two loans. Other ways a property owner can raise money by using the property as collateral are cash-out mortgage refinancing or taking out a home equity loan. See also Piggyback Loan.