A second mortgage is a loan secured by a property that already has an existing first mortgage. It occupies the junior (subordinate) lien position, meaning the first mortgage holder gets paid before the second mortgage holder in the event of foreclosure or sale. Common forms of second mortgages include home equity loans (which provide a lump sum at a fixed interest rate) and HELOCs (which provide a revolving credit line, typically at a variable rate).
Because of their junior position, second mortgages carry higher risk for lenders — if the property is foreclosed by the first mortgage holder, the sale proceeds go to the first mortgage first, and the second mortgage holder only gets paid if there is money left over. This higher risk translates to higher interest rates for borrowers, typically 1% to 4% above first mortgage rates. The available amount is based on the property's equity: most lenders cap the combined loan-to-value (CLTV) at 80% to 90%.
Second mortgages allow homeowners to access their equity without refinancing the first mortgage — which may have a lower rate worth preserving. For example, if your first mortgage is at 3.5% (locked in during a low-rate period) and current rates are 7%, refinancing the first mortgage to access equity would mean giving up that favorable rate. A second mortgage lets you tap equity while keeping the first mortgage intact.
At closing, if a property has a second mortgage, it must be paid off from the sale proceeds after the first mortgage. The title search identifies all mortgages, and the settlement agent obtains payoff statements and coordinates payments for each lien in priority order. If you are refinancing with an existing second mortgage that you want to keep, a subordination agreement is required.
At Beycome Title, we coordinate all lien payoffs and subordinations as part of our standard closing process. Use Beycome's home equity calculator to estimate your available equity, or get your free closing quote.