Quick answer
A second mortgage is a loan secured by your home that's paid back after your first mortgage if the home is sold or foreclosed. The three common types are a HELOC (a revolving line with a variable rate), a home equity loan (a fixed-rate lump sum) and a piggyback loan used at purchase. Second mortgage rates usually run higher than first mortgage rates because the lender is second in line. Most lenders cap your total debt at 80% to 85% of the home's value.
What "second" means
"Second" is about the lien's position, not about owning a second home. If you sold or lost the house, your first mortgage gets paid first. The second mortgage gets paid from whatever is left. That higher risk is why second liens cost more.
You keep your first mortgage, its rate and its payment. The second loan adds a separate payment on top.
The three types of second mortgage
| Type | How you get the money | Rate | Best for |
|---|---|---|---|
| HELOC | A credit line you draw from as needed | Usually variable | Projects in stages, emergency reserve, uncertain amounts |
| Home equity loan | One lump sum at closing | Fixed | A known amount and a payment that never changes |
| Piggyback (80-10-10) | Funds part of a home purchase | Fixed or variable | Buying with 10% down while avoiding mortgage insurance |
How second mortgage rates are set
HELOC rates are usually the prime rate plus a margin. Your margin depends on your credit score, how much equity you keep and the line size. Home equity loan rates are fixed at closing and priced off the same factors.
In general, second mortgage rates run above first mortgage rates. The gap narrows with high credit and plenty of equity left over. Current examples by state: HELOC rates by state and HELOC rate trends. Any rate you see published is an example. Your own quote depends on your file.
Requirements to get a second mortgage
- Equity: your first mortgage plus the new loan usually can't top 80% to 85% of the value. Some programs go to 90%.
- Credit: 680+ for the best pricing. Some programs go lower.
- Debt-to-income: usually under 43% to 50%, counting the new payment.
- Income: pay stubs and W-2s, or bank statements and other options if you're self-employed.
- Clean payment history on your first mortgage.
The piggyback loan (80-10-10)
A piggyback is a second mortgage taken out at the same time you buy. You put 10% down, take a first mortgage for 80%, and the second covers the other 10%. Because the first mortgage stays at 80%, there's no private mortgage insurance on it.
Example only, on a $500,000 purchase:
| Example only | Piggyback 80-10-10 | One loan, 10% down |
|---|---|---|
| First mortgage | $400,000 at 6.75%: about $2,594 | $450,000 at 6.75%: about $2,919 |
| Second mortgage | $50,000 at 8.5%, 20 years: about $434 | None |
| Mortgage insurance | None | Often around $150 to $250 a month until you reach 20% equity |
| Total monthly | About $3,028 | About $3,070 to $3,170 |
The difference is often small, so compare both. Mortgage insurance drops off as you build equity, but the piggyback payment doesn't change unless you pay it down or refinance.
Refinancing a second mortgage
You have three ways out of a second mortgage you don't like. You can refinance it into a new second at a better rate. You can fold it into a new first mortgage with a cash-out or rate-and-term refinance. Or, if it's a HELOC near the end of its draw period, you can switch it to a fixed-rate loan. Which one is cheapest depends on your first mortgage rate. See refinancing a HELOC.
FAQ
What is a second mortgage?
A loan secured by your home that sits behind your first mortgage. HELOCs, home equity loans and piggyback loans are all second mortgages.
Is a HELOC a second mortgage?
Usually, yes. A HELOC taken out while you have a first mortgage is a second lien. A HELOC can be in first position only when there's no other mortgage, or when it replaces it.
Are second mortgage rates higher?
Generally, yes. The second lender gets paid only after the first, so it takes more risk and charges more. Strong credit and more equity narrow the gap.
How much can I borrow with a second mortgage?
Most lenders let your first mortgage plus the second reach 80% to 85% of your home's value. Some programs allow 90% for strong borrowers.
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