When you need money, sometimes a second mortgage is the answer. Second mortgages serve a variety of purposes, and are described with various names.

A second mortgage is another mortgage on your home - a loan secured against the property. The term “second” indicates that the loan does not have priority on your home in case you default. Instead, your first mortgage has priority and would be paid before any funds go towards the second mortgage.

Some common uses for second mortgages are:

Home improvements
Avoiding Private Mortgage Insurance (PMI)
Debt Consolidation Programs
Purchasing additional homes

Second mortgages or equity loans can serve several purposes. You can renovate your house, pay off debt, or even refinance to take out an education loan.
If your debt is eating up a big percentage of your income, you may need some debt restructuring. One way to restructure and consolidate debt is to take out a second mortgage—or home equity loan—on your home. Applying for a home equity loan is much easier than the process you underwent in applying for your original mortgage. To qualify for a home equity loan, your credit must be in good standing and you must be able to document your income. Beware of zero- or no-equity loans, which enable you to borrow up to 125 percent of your home's value. Such loans have higher interest rates and tighter qualifying standards.

There are two main types of second mortgages:

*Home equity loans
*Home equity lines of credit

A home equity loan is a lump-sum loan and is generally amortized like most first mortgage loans. The difference is that the home equity loan is a second loan against your home behind the first mortgage that you already have. The closing costs for a second mortgage are lower than closing costs on a first mortgage loan. The rates on home equity loans are fixed rates that are slightly higher than fixed rates on first mortgages.

Home equity lines of credit (HELOC) A line of equity is similar to a home equity loan. There are some differences that make a difference:

Variable rate - On a home equity line of credit the interest rate is can fluctuate from month to month. This makes the home equity line of credit appealing when interest rates are low, but risky when interest rates increase.

Continual use - You can use the account as long as there funds. This kind of home equity line of credit is similar to a credit card, where you have a balance and available credit line.

Future amortization - At some predetermined period (5, 10, or sometimes 20 years) you will no longer be able to draw against the account. At this point you will be required to pay off the loan, making monthly payments on the principal and the interest.

Both loan types can be effective in reducing your overall debt. Another benefit of a second mortgage or home equity loan is that you can deduct this interest on your taxes. However, don't be too quick to decide that this is the best solution for you. You probably don't want to deplete all of the equity in your home just to reduce your monthly bills. Be careful if the combination of both the second mortgage and your first mortgage goes beyond 90 or 95 percent of the value of your home. You don't want to be in a position where the sale of your house does not cover the debt that you owe plus real estate fees.