Home Equity Loans VS. Second Mortgage Loans
These two terms are used interchangeably, and each one represents the same type of financing and scenario. Only a miniscule fraction of polled lenders indicate they actually have separate definitions for Home Equity Loans and Second Mortgages, and such definitions vary only slightly. Therefore, it is easiest to remember that both borrowers and lenders alike will always use these two terms to refer to the exact same thing.
These loans are mortgages in addition to the initial loan used to purchase the property, and the amount of this second mortgage is based on the amount of equity in the property. The new loan is placed second to the original mortgage, indicating that in the event of default and foreclosure it will be repaid after the initial lender recoups his money.
Second mortgages will also generate additional closing costs and settlement fees that the home owner will be required to address prior to receiving any money from the lender. Borrowers must understand that the second mortgage loan also represents a lien on the property, therefore must also be satisfied in full prior to selling the home.
