What is a second mortgage?

A second mortgage is indeed accurately described as a cash advance based on the paid-up value of a home, making it a type of loan that allows homeowners to borrow money by leveraging the equity built up in their property. When a homeowner pays down their first mortgage, they accumulate equity, which is essentially the difference between the home's market value and the remaining balance of the first mortgage.

In the case of a second mortgage, lenders consider this equity as collateral to secure the loan. Homeowners often use second mortgages for various purposes, such as consolidating debt, funding home improvements, or covering other major expenses. This ability to tap into the equity of the home differentiates a second mortgage from other forms of lending where the asset may not be involved.

The other options do not accurately capture the typical characteristics of a second mortgage; they do not emphasize the use of home equity or its relationship to the first mortgage. This key aspect of using the value of a home sets a second mortgage apart and highlights its function within personal finance.