Second mortgages are divided into two types: Home Equity Lines of Credit (HELOC) and Fixed Rate Seconds.

HELOC:  The interest rate of these loans are variable on a month to month bases and change with bank lending prime. If Bank lending prime changes the rate changes.

The advantage of this type of loan is its variable use. A dollar amount is established for use and the customer can use any part of this dollar line at any time within a 10 years period. The customer can use or not use the equity line. The customer is given usually 5 checks for use and does not have to call the bank for an approval or reevaluation for any use of the line of credit.

The payment is computed on the outstanding balance at the current interest rate regardless of when the credit line was used. For small amounts under $50,000 this is a very good loan.

Fixed Second: There two types of fixed seconds, a 15-year loan amortized for 15 years and a 30 years amortized loan due in 15 years. Some do have an interest only feature in the first 5 years. These loans do not have any flexibility. The amount requested is the amount borrowed and the payment is pre-computed. If a customer wants more money in the future, the loan has be refinanced and started all over again.