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People often get confused about exactly what a second mortgage is. Some think it's only for debt consolidation, while others seem to believe that it makes your home more likely to get repossessed. The real answers, however, are more complicated than that.
The basic idea of a second mortgage is that it takes advantage of your equity - that is, any increases in your house's value that have taken place since you bought it all those years ago. Instead of letting the equity sit there until you sell your house (which you might not want to do), you ‘free it' by taking out a loan for that amount.
So, to use a concrete example, let's say that your house was worth $200,000 when you bought it, and is now worth $250,000. If you get a second mortgage, you can get a loan for that extra $50,000, and either pay it back when you sell the house or simply as an extra payment each month on top of your existing mortgage payment.
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However, the money is not simply transferred to your bank account when you take out the loan. Instead, it is made available to you as a line of credit, much like a credit card, meaning that your repayments will gradually increase as you spend more of the money you have been given access to.
Depending on the kind of second mortgage you get, you might need to repay the money in as little as a year, or you might have as long as twenty years. It's up to you which kind you get - for smaller amounts, a shorter term is better, as you will pay much less interest on the loan.
Before you get a second mortgage, make sure to do your research very thoroughly - it's a massive and often misunderstood financial commitment, so you want to make sure you have all the facts before you sign anything.
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