Did you know that after a first mortgage, a home loan consumer can take out a second mortgage? Everyone may not need to take out a second mortgage. Yet, should one need an additional source of capital, it may be helpful to know such an option does exist.
The reason a home equity is dubbed as the second mortgage is because the lending institution is second in line behind the first mortgage provider who will receive remuneration if the house should be sold in foreclosure.
While a home equity line of credit (HELOC) is referred to as a second mortgage, a second mortgage is not always a home loan. Confusing, no it really does not have to be. In brief, considered to be a form of a second mortgage, home equity loans (HELOCs) are secured by the value of the housing property. In terms of financing flexibility, a HELOC offers the most versatility as compared with a traditional home loan because the homeowner can borrow the entire line of credit, pay the total balance down and borrow repetitively over the course or life of the loan agreement. On the other side of the financing spectrum, a traditional home loan is for a defined amount and remitted in specified equal payments over the loan�s term.
A line of credit is deemed as a commitment by a lender to extend the amount of the line over the term of loan�s period. A home loan is a secured loan backed by the value of the residential property. The home equity line of credit is considered a mortgage because it's protected or backed by the value of a housing unit or home.
Very similar to the way in which a first mortgage is secured by the value of the residence, a second mortgage is not entitled to any proceeds from the sale of the property until the first mortgagee has been compensated. The common denominator of a home equity line and a second mortgage is the lending status assigned by the mortgage provider.