Thinking about how to cover big family costs like daycare, education, or home improvements? A second mortgage might be a smart move for moms juggling family finances. This type of loan allows you to tap into the equity in your home—the difference between what your home is worth and what you owe on your primary mortgage—giving you access to funds when you need them most.
What is a second mortgage?
A second mortgage is essentially a loan against the value of your home without having to sell it. The cash can be used for things like paying for daycare, college tuition, or even creating that dream playroom. When used wisely, it can be a powerful tool for managing family expenses.
How does a second mortgage work?
A second mortgage uses your home as collateral, just like your first mortgage. How much you can borrow depends on how much equity you’ve built up. If you’re wondering what this might look like for your budget, tools like affordability calculators (like this one on Tomo Mortgage) can help you understand your home buying power and whether a second mortgage makes sense for your needs.
Example:
- Home value: $400,000
- Current mortgage balance: $250,000
- Equity: $400,000 – $250,000 = $150,000
Most lenders allow you to borrow up to 85% of your equity. In this example, you could borrow up to $127,500, which might cover anything from preschool fees to major medical bills.
Types of second mortgages
- Home Equity Loan
A lump sum loan with a fixed interest rate—great for one-time expenses like tuition or a family vehicle. - Home Equity Line of Credit (HELOC)
Works like a credit card, offering flexibility for ongoing costs like extracurricular activities or home projects. HELOCs typically have variable interest rates, so your payments might fluctuate.
Repayment options
- Home Equity Loan: Fixed monthly payments over 5–30 years.
- HELOC: Pay interest during the draw period (usually 5–10 years), then repay both interest and principal over 10–20 years.
Interest rates and affordability
Second mortgages generally have lower interest rates than personal loans because they’re secured by your home. If you’re ready to dive in, see today’s 30-year interest rates on Tomo Mortgage and find the best fit for your budget and financial goals.
Why choose a second mortgage?
- Lower interest rates: Compared to credit cards or personal loans, a second mortgage can save you a lot of money.
- Larger loan amounts: Perfect for bigger expenses like college savings or remodeling for a growing family.
- Flexible repayment options: Especially with a HELOC, you can borrow and repay as needed.
- Potential tax benefits: If you use the loan for home improvements, you might qualify for a tax deduction (check with your tax advisor).
Downsides to consider
- Risk: Your home is collateral, so missing payments could lead to foreclosure.
- Closing costs: Just like your first mortgage, second mortgages come with fees that can add up.
- Increased debt: Adding a second loan increases your overall financial obligations, so make sure it’s manageable.
Bottom line
A second mortgage can be a great way to access cash for your family’s needs, whether it’s paying for school, funding home upgrades, or consolidating debt. Just remember to weigh the pros and cons carefully. With the right planning, it can help ease the financial pressures of raising a family.
