What is a second mortgage?

A second mortgage refers to a loan that is secured by the borrower's property, but it ranks behind the primary mortgage in terms of claim on the property. This means that if the borrower defaults on their loans, the primary mortgage holder has the first claim to the proceeds from the sale of the property. Because of this subordinate position, second mortgages typically carry higher interest rates compared to first mortgages; the lender assumes more risk due to the potential for loss in the event of foreclosure.

The other options do not accurately define a second mortgage: a second mortgage must have a lien on the property, so the description of a loan without a lien does not apply; while it could be used to finance aspects of a primary residence, it is not limited to that purpose; and a second mortgage does not allow borrowers to skip payments, as that would typically describe a specific type of loan agreement or program, which does not characterize a second mortgage in general.