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A home equity loan is usually a second mortgage because lenders attempt to make getting this loan a simple, fast, and low cost option. There is no legal requirement, however, that mandates that it must be secondary financing. Technically, it could be a first mortgage, although most lenders will not permit an equity loan to be a first mortgage. Instead of a full title examination, title insurance, complete appraisal, or the level of documentation of a first mortgage, a home equity loan is processed much more like an auto loan than a first mortgage loan.
A home equity loan sometimes becomes a first mortgage if the senior financing (first mortgage) is paid off, leaving only the equity loan, which was a second mortgage. After the first mortgage is discharged, the home equity loan, formerly in second position, automatically moves up to first position, thereby making it a first mortgage.
|Jennifer Mathes, Ph.D.|