A second mortgage is a lien placed on one’s home which comes in after the 1^st mortgage. It is used as collateral for a loan which could be taken out for a variety of reasons. It might be to consolidate some debts, as security to renovate the home or as collateral for a business loan. There are many reasons to do such. The main reason is that the home owner could not refinance with their 1^st lender. Possibly they don’t meet the requirements or the term of the first mortgage is not yet due and the pre-payment penalty would be too expensive to refinance.

Given that the lender with the first mortgage has first rights to take any action on the property and they have a better loan to value equity position, the interest rate on the second mortgage/loan will normally be higher as the risk to the lender is greater.

This is not to say that it is a bad idea for the client to take out a second mortgage as long as it is affordable and it will help the client with their financial position.

Private lenders generally have more options than the main street institutions and therefore can provide terms and conditions that meet the client’s needs. Remember interest rates are not the only thing to consider when seeking out a private lender for the second mortgage. Meet with them, ask the right questions and in the end be comfortable with your decisions.