Once you have decided a second mortgage loan is right for you, the next choice you will need to make is what type of second mortgage loan to take out. There are two basic options: a traditional second mortgage / home equity loan, or a home equity line of credit. The type of plan that is best for you depends upon a variety of factors. Regardless of the type you choose, any second mortgage loan will use your home as collateral. Be sure you are fully aware of and able to meet the financial obligations of any loan you select.

The traditional second mortgage loan is set up just like an original mortgage loan. It is designed to provide a lump sum of money that will be paid over a certain time period, such as 15 months. The amount you will be able to borrow will be based on the total value of your home as well as how much you owe on your original mortgage. Typically a consumer can expect to be able to borrow no more than 75-80 percent of their home’s value, inclusive of both first and second mortgage loans.

Interest rates on second mortgage loans are often not as favorable as those on original mortgage loans; however, the associated closing costs are often less. Additionally, a second mortgage loan will usually not involve extra expenses such as insurance or escrow. Also, the paperwork required usually is not as extensive for a second mortgage loan.

So, if you need a lump sum of money, for example to add a new room to your home or to renovate your kitchen, a second mortgage loan can prove to be a good choice.