A second mortgage is usually a loan subordinate to another mortgage loan on the same property.

The difference between the second mortgage and the home equity line of credit, is the amount of the loan given and how it is paid. Just like the first mortgage, you will be given a loan, and will pay it back based on the payment amount and repayment schedule you have agreed-upon. In the majority of the states, the equity you need for a second mortgage is 20%.

Typically, the primary or first mortgage will be the one, which gets paid-off first, and this is why the second mortgage will have a higher interest rate and higher closing costs (additional taxes and fees apart from the purchase price), which will generally make the second mortgage more expensive than the first one.

Usually, the second mortgage you can receive is equal to the equity, which you already own in your house. In other words, if you have paid off $25,000 of a total of $100,000 of your primary mortgage, you will be given a second mortgage for this same amount of $25,000.

The interest rate will be defined by the lender, according to your credit history, the interest rates at the moment, as well as the value of your home. As a rule though, the interest rates on second mortgages are higher than those of the first mortgages. On the other hand, they are tax deductible in the second mortgages.

The second mortgage can be used for refurbishing your house, for repaying your student loans, or for starting up and carrying out a business.

In some cases, you may be able to get a second mortgage at the same time you obtain the primary one. This could be useful, if you are having difficulties meeting the initial purchase down payment, In this case, you can use the second mortgage to add to the money you have available for the down payment.

In rare cases, some banks will offer a second mortgage, which together with the first one is more than the actual price of your house, but the additional loan will not be tax deductible, since you can use tax deductions only for the amount equal to your house's actual value.

If you are planning to use the second mortgage to refinance the primary one, you should carefully calculate the closing costs and interest rates, in order to benefit from such a refinancing. Sometimes, it may be a profitable choice, but in other cases, the calculations will prove that this is not an option you should choose.

Remember, that although it is tempting to receive a large sum of money as a second mortgage on your house, this needs to be thought over very cautiously, because you may face the risk of losing your home, in case you can't make the payments for the second loan.

Another setback when applying for a second mortgage from a lender, different than the one who gave you your senior mortgage, are the fees associated with it. Sometimes, these fees by themselves will prove economically inefficient, and you may find yourself in a difficult position when paying it back.