A 2nd mortgage is popular method of borrowing a lump sum against the value of your home. Here are the basics of this type of home equity loan.

A home equity loan or second mortgage is an additional loan secured by your home. The second mortgage is considered subordinate to your primary mortgage; if you default on either loan the 1st mortgage will be paid off by the sale of your home. Any remaining proceeds from the sale will be applied to the second mortgage.

Second mortgages typically come with higher interest rates because there is more risk for the lender. You may be required to pay closing costs and points in order to qualify for the loan.

Second mortgages are paid in a lump sum and generally come with fixed interest rates. This fixed interest rate is an advantage over a home equity line of credit which comes with a variable interest rate.

A second mortgage may be a good idea for homeowners needing a specific sum of money. The added security of a fixed interest rate makes this option more attractive than a home equity line of credit in many cases. To learn more about your home equity options and how to avoid costly mistakes, register for a free mortgage guidebook.