A second mortgage, also known as a junior-lien, is a loan that you take out using your house as collateral while you still have another loan secured by your house. It is a type of subordinate mortgage made while an original mortgage is still in effect. Second mortgages can mean high loan amounts, and some lenders allow you to take up to 90% of your home’s equity in a second mortgage. Home equity loans and home equity lines of credit (HELOCs) are common examples of second mortgages. Some second mortgages are “open-end,” meaning you can continue to take cash out up to the maximum credit amount and, as you pay down the balance, can draw again up to the same limit. Other second mortgage loans are “closed-end,” in which you receive the entire loan amount upfront and cannot redraw after that.

When you take out a second mortgage, you are adding to your overall debt burden, which can make you more vulnerable in case you then experience financial difficulties that affect your ability to repay your debts. Second mortgages might put pressure on your budget because you agree to make two monthly mortgage payments: one to your original lender and another to your secondary lender.

It is essential to note that a second mortgage is different from a mortgage refinance. When you take out a second mortgage, you add an entirely new mortgage payment to your list of monthly obligations. You must pay your original mortgage as well as another payment to the second lender. On the other hand, when you refinance, you pay off your original loan and replace it with a new set of loan terms from your original lender. You only make one payment a month with a refinance.

In summary, taking out a second mortgage means borrowing against your home, which can put your home at risk if you cant make payments. It is essential to consider the risks and benefits of a second mortgage before deciding if it is the right choice for your situation.