Lien

• When you sign your agreement with your first mortgage lender, you give the lender the first lien on the property. The lien gives the lender the right to take your property if you default on the loan. When you get a second mortgage, you give the second mortgage lender the second lien on the property. In the case of default, the proceeds from the foreclosure sale of your property would have to pay off the entire debt you owe the first lienholder before the second lienholder can claim anything.
  
  

Types

• There are two common types of second mortgages: conventional second mortgages and line of credit. Both loans are secured against your property. However, a conventional second mortgage provides the loan as a fixed lump sum while a line of credit provides a pool of money that you can withdraw throughout a certain period of time. With a conventional second mortgage, you usually start paying the loan off immediately. With a line of credit, you can withdraw money up to a certain date, then you have to start paying off the loan.
  
  

Features

• A conventional second mortgage usually has a higher interest rate compared to a first mortgage because the lender faces more risk due to the subordinate position of the second lien. However, if the second mortgage is a line of credit with an adjustable rate, the interest rate can possibly drop with the market to a level that is below that of the first mortgage.
  
  

Refinancing the First Mortgage

• When you want to refinance your first mortgage, you may face more problems if you also have a second mortgage because your second mortgage lender has to agree to the refinance. Second mortgage lenders generally don't object to the refinancing of a first mortgage because if you get a good deal on the refinancing, you will find it easier to pay your second mortgage, as well. However, some second mortgage lenders do refuse to allow the refinancing of first mortgages.