100 Percent Second Mortgage

A 100 percent second mortgage is a type of mortgage with which you may borrow up to the full value of the existing equity of your home. It is not, as some may think, called a 100 percent second because you can take a second mortgage for 100 percent of what your home is worth.

It is called a 100 percent second because you have the possibility of having a total of 100 percent of your home’s value in loans, with the combination of both the first and second mortgage. For example, if you own a home worth $100,000, and still owe $40,000 on your first mortgage, you can get a second mortgage under this plan for $60,000. You would therefore be mortgaged for 100 percent of the value of your home.

There are many variables when it comes to second mortgages. Such inconsistencies can be found in both fixed and adjustable rates, as well as, in 10, 15, 20, or 25 year offerings. The second mortgage is commonly based on the prime rate plus an add-on, and typically, a second mortgage carries a higher interest rate than a first mortgage, although closing fees should be minimal.

The interest rate will be slightly higher because the lender providing the second mortgage must take a subordinate position to the holder of the first mortgage holder. However, since there is no negative equity position, the interest premium should not be excessive.

Even though you may be 100 percent mortgaged, this type of mortgage does not put you in a negative equity position, as would be the case with a 125 percent mortgage. Because of this, you have more flexibility in how you spend the proceeds of your second mortgage loan; it can be used to pay off debt, finance home improvements, or even take a vacation.

The good news is that interest on the 100 percent second mortgage is fully tax deductible.