What defines a second mortgage?

A second mortgage is essentially a loan that homeowners take out in addition to their primary mortgage, and it is secured against the same property. This means that the property serves as collateral for both the primary mortgage and the second mortgage, allowing the lender to have a legal claim to the property if the borrower defaults on the loan.

The primary function of a second mortgage is to enable homeowners to tap into their home equity for purposes such as home improvements, debt consolidation, or other financial needs. Because it is subordinate to the first mortgage, the lender of a second mortgage takes on more risk, which typically results in higher interest rates compared to the primary mortgage.

In contrast, other options do not accurately describe the nature of a second mortgage. For example, a loan that lets homeowners access equity without obligations implies a lack of repayment requirements, which is inconsistent with what a second mortgage entails. An unsecured personal loan does not rely on property as collateral, and refinancing original mortgage terms pertains to altering the conditions of an existing mortgage rather than taking on a new loan secured against the property.