The American Dream has often been synonymous with home ownership. For many, owning a home is not just a financial investment, but a pillar of personal stability and family legacy. Yet, for a significant number of Americans, one mortgage is not where the story ends. These homeowners have ventured into the realm of second mortgages, a financial maneuver that can simultaneously provide opportunities and pose potential risks.
As of 2023, a decreasing number and percentage of homeowners in the United States are taking out second mortgages on their homes. These additional loans, whether driven by the need to finance substantial home improvements, consolidate debt, or secure funds for large purchases, peaked in number and percentage amid the great housing bubble. Since then, homeowners have increasingly declined to take out second mortgages.
But just how prevalent are these second mortgages? To understand this trend, we sourced the latest data from the Census Bureau’s 2021 American Community Survey 5-Year Estimates and analyzed the change over time since 2010.
Read on to find out how many homes have a second mortgage in the U.S.
What Is a Second Mortgage?
First and foremost, what is a second mortgage? A second mortgage, as the name suggests, is a secondary loan taken out on a property that already has one mortgage. This type of loan utilizes the equity built up in the home as collateral. Equity is the difference between the home’s current market value and the outstanding balance of the initial mortgage. For instance, if a home is valued at $350,000 and the remaining mortgage balance is $200,000, the homeowner has $150,000 in equity. Homeowners can borrow against this equity through a second mortgage, often up to a specified percentage of the equity.
Although “second mortgage” is often used as a catch-all term to describe any loan secured against the value of your home beyond the primary mortgage, technically, a second mortgage and a home equity loan are not the same thing. The distinction lies primarily in how the money is disbursed and repaid.
A traditional second mortgage is a separate loan from your first mortgage, with separate payments. Much like your first mortgage, a second mortgage is a one-time loan, giving you a lump sum of money that you will repay over a set term, often at a fixed interest rate.
A home equity loan, on the other hand, also lets you tap into your home’s equity, but it works more like a personal loan. Home equity loans also provide a lump sum that is repaid over time, and typically have fixed interest rates. However, home equity loans are frequently used by homeowners for big, one-time expenditures like a major home improvement project or a big life event.
How Many Homes Have a Second Mortgage in the U.S.?
According to data from the Census Bureau’s American Community Surveys, from 2010 to 2021 (the latest year available), both the number and percentage of homes with a mortgage have experienced a marked decrease in second mortgages, as well as home equity loans. Indeed, even just looking at the decline in owner-occupied housing units with a mortgage since 2010 is rather startling: From 51,696,841 homes with a mortgage in 2010, it has dropped by 3.7%, to 49,759,315 homes with a mortgage in 2021.
Back in 2010, nearly a quarter (24.6%) of homes with a mortgage had either a second mortgage or a home equity loan, equivalent to about 12.72 million homes. As of 2021, that figure is way down, to only 11.6% of homes, equal to roughly 5.76 million homes. What’s more, every year since 2010, the Census Bureau recorded a decline in both the number and the percentage of homes with a second mortgage or home equity loan.
The table below provides the details on homes with a mortgage that have second mortgages or home equity loans over the years:
Looking at the state level, the percentage of homes with either a second mortgage or home equity loan can be much higher than the national rate. The state with the highest percentage of second mortgages or home equity loans is Hawaii, with 18.9% of homes having one or the other. On the other end of the spectrum, Texas has the fewest homes with a second mortgage or home equity loan, at just 4.8%.
Reasons for the Decline in Second Mortgages
The decrease in second mortgages and home equity loans between 2010 and 2021 on the national level is quite remarkable: From nearly a quarter of homes with mortgages in 2010, down to just above 10% in 2021. The possible reasons for this dramatic decline are manifold and can be attributed to a range of factors.
One prominent factor could be the aftershocks of the housing crisis in the late 2000s. During the crisis, many homeowners found themselves “underwater” on their mortgages — owing more on the mortgage than the property was worth — which made it harder to qualify for second mortgages or home equity loans. Although the housing market has recovered since then, the experience might have made homeowners and lenders more cautious about taking on or issuing second mortgages and home equity loans.
Another factor that might be at play is the changing financial landscape. Record-low interest rates, throughout the 2010s until the rate hikes of 2022, allowed many homeowners to refinance their primary mortgages to tap into their home’s equity or lower their payments, reducing the need for second mortgages or home equity loans. Additionally, as the economy improved, homeowners might have relied less on their home’s equity to finance large expenses or to manage debt.
Lastly, stricter lending standards have been implemented in the wake of the housing crisis. Lenders may have tightened their requirements for second mortgages and home equity loans, making it more difficult for homeowners to qualify.