A stand-alone second mortgage is an additional loan taken out against your house when you already have a first mortgage. What makes a second mortgage a stand-alone loan is taking it out by itself, as opposed to closing it at the same time as your first mortgage. When you borrow money against your home to consolidate debt or build an addition, and you don't touch your pre-existing first mortgage, you're taking a stand-alone second mortgage.
Stand-Alone Second Basics
Both home equity loans and home equity lines of credit can be stand-alone second mortgages. If you need to access cash, these loans frequently offer competitive interest rates. You may also be able to write off the interest that you pay on them as long as you don't use any more than $100,000 of their balances for anything not related to your house, and you owe $1.1 million or less on your first two homes.
Second vs. Refinanced First
If you aren't looking to take a lot of money out of your house, you may also be able to pull cash out of it by refinancing your first mortgage. Refinancing your first mortgage frequently carries a lower interest rate, since it's less risky for a lender to be the only loan on your house than to be the second loan hoping to get any money after the first lender gets paid off. Taking out a stand-alone second mortgage has the benefit of not changing your first loan's pay-off date. The longer you pay on your first loan, the more principal and the less interest you pay, but refinancing it restarts that schedule. If you don't mitigate this by choosing a shorter loan or paying a little extra, refinancing could turn out to be very expensive.
Second vs. Unsecured Loan
If you don't want to touch your first mortgage and you also don't want to put your house at risk, you can also borrow money by taking out an unsecured loan or a loan against other collateral. Car loans, boat loans and credit cards are all examples of these types of debt. Unlike a stand-alone second mortgage, the interest you pay on these loans is almost impossible to deduct on your taxes. In addition, barring a promotional rate, the interest you pay on them is usually higher than it would be on a second mortgage since the collateral isn't as strong as it is on a second mortgage. Then again, when you use these loans, you aren't putting your house at risk.
Sometimes, you take out a second mortgage as a part of buying a house. For instance, if you want to borrow more than 80 percent of your home's value and don't want to pay any mortgage insurance premiums, you could borrow 80 percent on a traditional first mortgage, put 10 percent down, and add a second mortgage for 10 percent. This structure, sometimes called a piggyback mortgage, is an example of when a second mortgage wouldn't be stand-alone.
- BD Nationwide Mortgage: Stand Alone Second Mortgage
- Bankrate: Piggyback Mortgages Mount a Comeback
- The Mortgage Professor: Valid and Invalid Reasons For Not Refinancing
- IRS: Publication 936
- Consumer Financial Protection Bureau. "What Is Private Mortgage Insurance?" Accessed Oct. 31, 2020.
- Internal Revenue Service. "Publication 936 (2019), Home Mortgage Insurance Deduction." Accessed Oct. 31, 2020.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.