Second mortgages are not as common as they once were, and getting one is not as easy as it used to be, but even with the recent financial pressures that many of us are facing in this economy, there are still a number of options that can allow you to get one. Whether it's the ability to use the existing equity of your home to help you get through a tough time, or to finance home improvements, a second mortgage in some cases can be the best financial option.

• What Is A Second Mortgage?

While there are still a number of choices for getting a second mortgage, it is usually possible only when you have existing equity in your home. A second mortgage differs from refinancing your home in a few ways. The most important thing to remember is the 80% rule, which affects the amount that you can borrow on a second mortgage, and will likely be less than if you refinanced. For example, if you own a $200,000 home and still owe $100,000, the 80% rule means that you can borrow up to 80% of the value of your home, minus the outstanding amount. So in this case, 80% of $200,000 is $160,000. Subtract from this what you still
owe-$100, 000. This equals $60,000, which would be the maximum amount you could borrow. The second mortgage on paper becomes a lien against your home.

• Is A Second Mortgage Right For You?

In general, and especially in this economy, a second mortgage can often be obtained at a lower interest rate than refinancing, and there are no closing costs associated with this type of borrowing. There are some restrictions, however, on what kind of expenses can be covered with a second mortgage. Lenders usually provide second mortgages for costs associated with home improvements and renovations, as these expenses will increase the value of your home. They also will consider a second mortgage for emergency medical expenses, to fund your child's education, or for debt consolidation if it is financially reasonable.

In general, a second mortgage may be the right choice for your particular financial situation and can be a smart way to fund much needed home improvements. Remember, it is always important to go to a few lenders to get the best offer possible, and to be sure you are only borrowing from a reputable and established institution.