A second mortgage is an additional loan placed upon a piece of property. The major distinction between a first and second mortgage is that if a property goes into foreclosure, repayment of the first mortgage takes precedence over the second. For this reason, a second mortgage is taken out on a property’s equity. Let’s say that the first mortgage was for $200,000. The borrowers have been living in the home for five years and have paid $20,000 on the loan. The property has also increased in value substantially due to the recent addition of an upscale shopping mall nearby. Now the home is worth $300,000. The homeowners could get a second mortgage on the equity of $120,000 that they have in their home. If the homeowners default on their mortgages and the loan forecloses, the second mortgage is paid after the first mortgage has been satisfied.
