What Are Second Mortgages

A second mortgage is an extra loan secured by the same property as the first mortgage.  Two common types of second mortgages are 80/10/10 loans and home equity loans.

80/10/10 Loans

An 80/10/10 loan is a second mortgage that is applied for simultaneously with your primary mortgage.  The 80/10/10 loan is frequently utilized by borrowers who are unable to pay for the complete 20% down payment so as to avoid  also having to cover the cost of private mortgage insurance.  These loans get their name, “80/10/10″, because the first mortgage usually covers 80% of the property purchase price, the second mortgage covers 10% of the purchase price, and the remaining 10% is the down payment provided by the buyer.  It really only makes sense to utilize an 80/10/10 loan if you are definitely unable to afford the 20% down payment or in the case that private mortgage insurance would greatly surpass the amount of a 80/10/10 loan, allowing for all costs.

Home Equity Loans

A home equity loan permits you to borrow money against the equity that has been built up in the property over a period of time.  It is common for homeowners to utilize home equity loans as an alternate option to refinancing, since the home equity loan will provide you with a lump sum of cash immediately, rather than the gradual savings provided by refinancing.  Home equity loans are either structured as a customary amortizing loan or as a line of credit that can be drawn from and later paid  back as necessary.  Regardless  of the loan structure, a home equity loan is nearly always 100% tax deductible.  In spite of this, home equity loans generally have elevated interest rates above the primary mortgage loan.