80 Percent Second Mortgage

An 80 percent second mortgage lets you borrow up to 80 percent of the value of your home, depending on the amount of equity available and the balance due on the first mortgage. Like any second mortgage, the 80 percent second mortgage is subordinate to the first mortgage, which means that in case of default, the first mortgage gets paid off first from the sale proceeds. However, because there is no negative equity position; that is, you are not borrowing money above the value of your home, this is usually not a problem, unless the property has devalued significantly.

The 80 percent second mortgage requires you to have some equity in your home already. For example, with a home valued at $100,000, assume you owe $50,000 on your first mortgage. Since the combination of first and second mortgages can be up to 80 percent of the value of your home, you would then be able to borrow $30,000. Because it is equity-based, the interest rate should not be unreasonable; however since it is a second mortgage, the interest rate is likely to be slightly higher than that of the first mortgage because of the higher risk involved.

Also, because it is equity-based, you are typically free to use the proceeds for whatever purpose you wish, such as home improvements, debt consolidation, or making a major purchase.

80 percent second mortgages are available with both fixed and variable interest rates and a variety of time durations, and closing costs should be minimal. And because the 80 percent second mortgage does not result in a debt load that is over the home’s value, the interest on the 80 percent second mortgage is fully tax deductible. As with any mortgage, the interest rate, and any points, will be higher for those with credit challenges.