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Home Improvement & Maintenance

What Is a Second Mortgage? Can I Use the Money to Update My Kitchen? Bathroom? Backyard?


The term “second mortgage” refers to loans taken out on a property that is already mortgaged or being financed (purchased). And yes, these products can provide you with a substantial amount of money ($25,000–$250,000) to make home improvements, pay off debt, pay for college, or increase your down payment when combined with a first mortgage at the time you buy a home.

Second mortgages are taken out in addition to a primary mortgage and would be the second lien on the home (hence the name). When you take out a second mortgage, you will have two mortgages (your primary and the new one) set at different interest rates and terms. While your primary mortgage may be for 30 years, your second may be for a period of 5 or 10 years, depending on your financial needs. There are other differences, too. You should expect a higher interest rate with a second mortgage and a faster close — often these loans close in just weeks.

The Home Equity Advantage LoanSM by AAFMAA Mortgage Services LLC (AMS) is our second mortgage offering. Since many AAFMAA Members are unfamiliar with this product, we’ve asked Robert Greenbaum, AMS Chief Sales and Marketing Officer, to explain how second mortgages work and who can benefit from them.

Related: Veteran Secures Second Mortgage for Home Improvements in Just Weeks

AMS: Why should AAFMAA Members consider second mortgages, especially in a rising-rate market.

Rob Greenbaum (RG): Many AAFMAA Members, or prospective Members, acquired their mortgage three or four years ago when interest rates were in the 3%–4% range. So they currently have a very good interest rate and they’ve already built equity in the home.

Now, if they need cash for home improvements or debt consolidation and they take out a second mortgage instead of refinancing, they’ll keep that low interest rate (3%–4%) on their primary loan and get the money they need through the additional loan. However, if they refinanced their original mortgage, they’d likely receive an interest rate 7% or higher for the total amount now.

AMS: Are there any restrictions on how to use the money from a second mortgage?

RG: No. A second mortgage can be used for any purpose, but we’re finding three main reasons Members want one:

  1. They want to make home improvements, such as updating a kitchen or bathroom, or creating an outdoor living space, but it may be hard to come up with the money upfront. A second mortgage, which can be closed in about two weeks, gives them the funds for their project and lets them repay in monthly payments.
  2. They may have high-interest credit card or car loans and want to consolidate those loans to a lower interest rate. Second mortgages have higher rates than primary mortgages, but are typically lower than the rates they’re paying for other loans. One Member contacted us to help consolidate their credit card debt, and we recommended a second mortgage. He’s now saving about $1,000 a month on those payments.
  3. They may have college tuition to pay this fall for one or more of their kids and prefer to finance with a second mortgage than having their kids take out higher-interest student loans.

AMS: Is a second mortgage different from a Home Equity Line of Credit (HELOC)?

RG: Yes, they’re two different kinds of financial products entirely. A HELOC is a line of credit based on your home equity value that functions like a checking account. You can spend up to the HELOC (or less), and pay as you go until you pay it back. That approach leads some people to overspend. With a second mortgage, however, you get the entire amount at the loan closing and the payments are fixed for a certain number of years, just like a primary mortgage.

We regularly talk to Members about both products and will sometimes review HELOC offers from other lenders to see if we can beat it with a second mortgage offer instead.

AMS: What is the typical term (length of payback) for a second mortgage?

RG: Typically, 5–20 years, depending on the amount. If it’s a lower loan amount, we recommend a shorter term.

AMS: Can you use a second mortgage as a down payment on a home?

RG: With a VA Home Loan, Members don’t have to put any money down, but if you do you’ll pay a lower VA funding fee and have lower monthly mortgage payments. With conventional loans, if you want to put 20% or more down to avoid private mortgage insurance (PMI), you can use a second mortgage for that. This is called a “piggyback” loan, and the terms are flexible. For example, you may decide to take out a piggyback loan for 20% of your home’s value. This scenario is known as 80-20, although other combinations are possible such as 80-15-5 where you have a second mortgage equal to 15% of the home’s value and make a 5% down payment. Your AMS Military Mortgage Advisor can run through the various scenarios.

AMS: Have you found some people are reluctant to borrow money from their home equity even if it’s for a home improvement, college tuition, or to consolidate high credit card debt?

RG: There are a lot of positives about this product, but it’s not for everyone because of all the variables to consider. Generally, it’s a smart financial decision, especially if you can lower interest rates on debt you already have, use the money to add to your downpayment to avoid paying PMI, or put the funds to another good use.

A lot of people want to make improvements to the home they’re in because moving (and getting a new mortgage) is costly. They may want to add a home gym, a second story, or backyard entertainment area, for example. Whatever your goals are, you can work with your AMS Military Mortgage Advisor to make sure this product is right for your long-term financial goals.

We’re Here to Help

Whether you’re thinking about buying, ready to start home-shopping in earnest, or considering a refinance, an AMS Military Mortgage Advisor will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of affordable mortgages designed to meet your needs.

Ensuring AAFMAA Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today or give us a call at 844-422-3622!