A second mortgage, by definition, is any loan that creates a second lien on a homeowner's property. It may be a mortgage that delivers a lump sum to the borrower at closing and carries a fixed or adjustable rate, or it could be a revolving line of credit secured by the property. The new loan is designated a second mortgage because the original mortgage lien holder is paid first if the borrower defaults. Therefore, second mortgages involve greater risk to lenders and the rates are generally higher. The higher rates are offset somewhat by the fact that the fees on second mortgages are almost always considerably lower than fees to originate first mortgages.

Homeowners may seek a second mortgage loan because debt secured by property is often the cheapest method of financing larger sums. Borrowers can opt for second mortgages to consolidate other loans and pay off unsecured credit card debt--especially if they can lower their rate and payment by doing so. Second mortgages are also popular for financing home improvements, higher education, and resolving financial emergencies like unforeseen medical expenses. Borrowers may be able to deduct their second mortgage interest on their taxes as well--an advantage over almost any other type of financing.