What is a second mortgage?

A second mortgage is a type of loan that is secured by a property that already has a primary mortgage, often referred to as a first mortgage. When homeowners take out a second mortgage, they are borrowing additional funds against the equity they have built in their property. This is possible because the second mortgage lender has a subordinate claim to the property; in the event of foreclosure, the first mortgage lender will be paid off before the second mortgage lender.

By choosing this option, it reflects a clear understanding of the structure of mortgages, particularly how they relate in terms of their priority on the property title. Homeowners often utilize second mortgages for various needs, such as home improvement, debt consolidation, or covering major expenses, using the equity accumulated in their homes as leverage for the loan.

The other options do not accurately define a second mortgage. The first option refers to a primary mortgage, while the second option discusses refinancing, which is a different process. The last option mentions a loan with no collateral, which does not apply to a second mortgage, as it is inherently a secured loan using the property as collateral. This understanding highlights important concepts within mortgage financing and property ownership.