The Average Interest Rates for a Second Mortgage

by KC Hernandez ; Updated July 27, 2017

A second mortgage has a higher interest rate than a primary, or first, mortgage. Secondary loans are also referred to as junior, subordinate or piggyback mortgages. They tend to be more expensive for borrowers and difficult to get because of the risk involved. Should you default on a second mortgage, chances are the second lender will receive partial repayment, or in the event of foreclosure, no repayment at all. Second loans have less priority for payoff than primary-mortgages, thus, they have higher average interest rates. Interest rates depend on borrower credit, location lender, loan type and loan size.

Interest Rates Rise With Indebtedness

You can get a second mortgage upon purchasing a home, or afterward, via a refinance. You tap into home equity when obtaining a second mortgage, and increase your home's combined loan-to-value, or CLTV. A CLTV ratio -- expressed as a percentage -- reflects total home-loan indebtedness to home value. For example, if you have a first mortgage for 80 percent of your home's value and a second mortgage for 10 percent of the home's value, the CLTV is 90 percent. Financing a larger portion of your home's value leads to higher interest rates, as the risk of default and foreclosure increases.

Home Equity Line of Credit

Lenders offer various forms of secondary financing. Home equity lines of credit, or HELOCs, are one type. HELOCs work like revolving credit accounts. Each month, you can pay the interest on amounts you have drawn from the line of credit, or pay part or all of the balance. You free up the credit line for future use when you pay down the balance.

HELOC rates fluctuate daily. A HELOC is considered a type of adjustable-rate mortgage, or ARM. The national average interest rate for a $30,000 HELOC was 4.74 percent, at the time of publication.

Stand-Alone Second Mortgages

Borrowers can get a second mortgage for a fixed amount. This is known as a stand-alone second mortgage. You can use the funds from a stand-alone second mortgage for a variety of purposes, such as tuition, non-mortgage debt repayment and home improvements. The rate may be fixed or adjustable depending on the loan type.

A home equity loan is a type of stand-alone second mortgage. As with a HELOC, you can draw from a home equity loan, prepay it and replenish the credit line. However, interest rates for an equity loan are fixed. Also, average rates are higher for home equity loans than HELOCs, according to myFICO. For example, the average national interest rate for a $30,000 home equity loan at the time of publication was 6 percent.

A closed-end second mortgage is another type of stand-alone second mortgage. It is more restrictive than a HELOC or a home equity loan because the interest rate is fixed and you can't replenish the credit or continue to draw from it if you decide to pay down the balance. The average interest rate on this type of loan is usually higher than HELOC and home equity loan rates. That rate can be higher than 10 percent, according to TheTruthAboutMortgage.com.

About the Author

K.C. Hernandez has covered real estate topics since 2009. She is a licensed real estate salesperson in San Diego since 2004. Her articles have appeared in community newspapers but her work is mostly online. Hernandez has a Bachelor of Arts in English from UCLA and works as the real estate expert for Demand Media Studios.