Sternberg Law Group


How a Second Mortgage Works in California?

25 Jun 2024 | Mortgage

A second mortgage is a loan that you can take out against the equity you have built up in your home. In California, as in other states, homeowners often use second mortgages to access cash for various purposes, such as home improvements, debt consolidation, or other major expenses. This type of loan is called a “second mortgage” because it is subordinate to the primary mortgage, meaning that if you default, your first mortgage will be paid off first.

Table of Contents

  1. Types of Second Mortgages
  2. Eligibility Requirements
  3. Application Process
  4. Interest Rates and Fees
  5. Risks and Benefits
  6. Repayment Options

1. Types of Second Mortgages

There are two primary types of second mortgages available in California:

  • Home Equity Loan: This is a lump-sum loan that is repaid over a fixed term with a fixed interest rate. It’s suitable for homeowners who need a specific amount of money for a one-time expense.
  • Home Equity Line of Credit (HELOC): This is a revolving line of credit that functions much like a credit card. You can borrow up to a certain limit and repay the funds over time. The interest rate on a HELOC is typically variable.

2. Eligibility Requirements

To qualify for a second mortgage in California, homeowners must meet several criteria:

  • Equity in the Home: You must have sufficient equity built up in your home. Most lenders require at least 15-20% equity.
  • Credit Score: A good credit score is essential. Lenders typically look for a score of at least 620, though a higher score will get you better terms.
  • Income and Employment: Steady income and employment history are crucial. Lenders will assess your ability to repay the loan.
  • Debt-to-Income Ratio: Lenders look for a debt-to-income ratio (DTI) of 43% or lower.

3. Application Process

The application process for a second mortgage in California involves several steps:

  • Evaluate Your Financial Situation: Assess your current financial status, including your credit score, income, and existing debts.
  • Determine Your Home’s Equity: Calculate the amount of equity you have in your home.
  • Choose a Lender: Shop around for lenders offering favorable terms.
  • Submit Application: Complete the application form and submit required documents, such as proof of income, credit report, and property appraisal.
  • Approval and Closing: If approved, review the loan terms, sign the agreement, and close the loan.

4. Interest Rates and Fees

Interest rates and fees for second mortgages in California can vary widely based on several factors:

  • Loan Type: Fixed-rate loans typically have higher interest rates than variable-rate HELOCs.
  • Credit Score: Borrowers with higher credit scores can secure lower interest rates.
  • Loan Amount and Term: Larger loans and longer terms can affect the interest rate.
  • Fees: Be prepared for fees such as origination fees, appraisal fees, and closing costs.

5. Risks and Benefits

Second mortgages come with both risks and benefits that homeowners should consider:


  • Access to Cash: Provides a way to access significant amounts of cash.
  • Potential Tax Benefits: Interest on a second mortgage may be tax-deductible.
  • Fixed Rates: Home equity loans offer the predictability of fixed interest rates.


  • Increased Debt: Adds to your overall debt load.
  • Foreclosure Risk: Failure to repay can result in foreclosure.
  • Variable Rates: HELOCs come with variable interest rates, which can increase over time.

6. Repayment Options

Repayment terms for second mortgages vary based on the type of loan:

  • Home Equity Loan: Typically repaid in fixed monthly payments over a term of 5 to 30 years.
  • HELOC: Offers a draw period (usually 5-10 years) during which you can borrow and repay multiple times, followed by a repayment period (10-20 years) where no further borrowing is allowed, and the outstanding balance must be repaid.