10 Things You Should Know Before Taking Out a Second Mortgage

The amount of equity you have in your home determines how much you can borrow with a second mortgage. For example, if you paid $500,000 for your house and have paid off $300,000 so far on your primary mortgage, you have $300,000 in equity. Lenders base the amount you can borrow in a second mortgage on your equity, along with your credit rating, debt load, and income. While guidelines vary from lender to lender, as a general rule you can borrow up to 80 percent of the value of your home, minus the remaining balance of your primary mortgage. In the example above, your second mortgage loan could be as much as $200,000:

80 percent of $500,000 = $400,000

$400,000 – $200,000 (the balance on your primary mortgage) = $200,000