I don't own a home and never have yet done so, but I see the advertisements all the time about loans, mortgages, etc.

First of all, is a home loan the same thing as a mortgage?

I've also heard of home owners taking a second mortgage out on their home. How can you take another mortgage out on a home if you haven't paid off the first mortgage? I mean, you are borrowing off something you don't technically own yet.

I'm no authority on the subject, but until one comes along here's my explanation. A mortgage is the debt you owe for a home you have bought in which some or most, or even all of the money to pay for the house has been borrowed and to be paid back over a period of years at some agreed-upon rate of interest. It allows a person to live in a house and pay the mortage holder regular monthly payments.

There are also loans that can be made where, again, the house acts as collateral for the loan, but where the value of the house, over and above the amount owed on it, called the equity, is what secures the loan. These are the so-called equity loans. When a home owner needs money for repairs, for instance, s/he may seek an equity loan. An elderly person whose home is entirely or mostly paid for, may choose to remain in his or her home and obtain income from the equity in the house through what is known as a reverse mortgage. In those cases the bank or mortgage issuer pays the home owner regular monthly income, and acquires incremental ownership interest in the property.

In short, you don't have to own the property outright in order to borrow money on it. The re-sale value of the house, over and above any monies owed on it, is what secures or acts as collateral to provide a lender reason to loan money, either as an equity loan, reverse mortgage, or second, or even third mortgage.

We normally think of a mortgage as a home loan. The mortgage, in fact, is the actual lien against the home that the bank has to secure the debt. Though the term "mortgage" is still used, in some areas (such as my state, North Carolina) the lien is formally a "deed of trust."

Some homes have more than one mortgage. A lender holding a first mortgage has rights that supercede the rights of a lender holding a second mortgage. If the borrower sells the property, is in default on his debts, etc., this means that the lender holding the first mortgage is paid off before the lender holding the second mortgage.

Why would there be a second mortgage? Let's say you have a home and land with an appraised value of $100,000. You might still owe $70,000 on your first mortgage, but want to borrow $20,000 for another purpose. To do this, you could offer the new lender a second mortgage as collateral.

Want to borrow money against your car, or money to buy a car? You put the deed of the car up as collateral. Want to borrow money against your home, or money to purchase a new home? You also put the deed up as collateral, and it is called a mortgage or, in some states, a deed of trust.

Hope this helps...'fuse

Thanks gentlemen, that does help.

To add to what fuse wrote:

It is very common today to take a first and second mortgage to buy a home. The first mortgage will be for 80% of the property cost. There is a 20% down payment requirement in most situations so this mortgage is the primary mortgage and would normally be used when the buyer has the full 20% downpayment.

A second mortgage can be used to make up the rest of the cost of the home. Second mortgages in this situation are generally higher interest rates because they are higher risk. This is essentially a loan to cover downpayment amount. When you do a 80-20 loan configuration, you own just about nothing because the banks start out with all the equity and you have to buy it back with interest over the term of the loan.

Here in Illinois there are also 10% down loans but then the borrower will have to pay PMI (Private Mortgage Insurance) to secure the loan. PMI is basically a waste of money depending on how much your loan amount is so the majority of people who can do so would take a second mortgage, which as Fuse says is just an additional lien against your property.

Us home owners don't really own very much

P.S. Once you buy the home and the value increases, you can then take out a home-equity loan and remove any amount over the 20% equity that you have in it. This may or may not require refinancing.

P.S. Many people will take out a second mortgage temporarily as they sell their old place and begin owning their new place. The equity in that situation is tied up in the original home and a second mortgage acts as a bridge to the time when that money can be freed up. This is called a "Bridge loan" by most people.