There are two distinct types of loans that can be taken out as part of a second lien: the Home Equity Line of Credit, and the Closed-End second. This article explains the HELOC and its uses.
Like a HELOC, the closed-end second lien allows borrowers to take equity out of a mortgage for use in other areas.
Unlike the HELOC, the closed-end second lien sets a fixed interest rate and a specific payment schedule – usually for 30 years. This format offers security for borrowers, giving them a plan that they can reliably execute.
The closed-end second lien can be used to take cash out for home improvements, debt consolidation, and more. It can be taken out in the following ways:
1) As a “piggy-back” with a first lien.
The piggy-back allows buyers to take a conventional first mortgage with favorable terms, while concurrently giving them a second lien that provides them cash ready for use.
2) As a standalone second lien.
This is particularly beneficial to borrowers with existing favorable loan terms, such as a low, fixed interest rate. The borrower might not want to refinance out of such a loan to take out cash, and instead is able to took out a second mortgage to free up the cash.
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