What does it mean when a borrower has a second mortgage?

When a borrower has a second mortgage, it signifies that they have taken on additional borrowing on a property that already has an existing first mortgage. This second mortgage typically allows the borrower to access additional funds against the equity they have built in the home.

Equity is the difference between the market value of the home and the amount remaining on the first mortgage. A second mortgage can be structured as either a home equity loan or a home equity line of credit (HELOC). Both options leverage the property’s equity to provide the borrower with additional capital, which can be used for various purposes such as home improvements, debt consolidation, or other financial needs.

In contrast to this, the other options do not accurately describe what a second mortgage entails. A borrower having completely paid off their first mortgage would not have a second mortgage. If they took out a new, independent loan, that would not specifically be referred to as a second mortgage unless the loan was secured against the same property. Lastly, leasing a property pertains to renting rather than borrowing against the property's equity, which is unrelated to the concept of a second mortgage.