So what exactly is wrong with these loans? To start with, the interest rates are extraordinarily high. They typically run two to six percentage points more than the rates for traditional home-equity loans. Then there are the fees, which are also higher than those for a traditional home-equity loan.

Of course, just how much you’ll pay depends on your credit history, the lender and the structure of the deal. In some cases, a high LTV loan is layered on top of an existing mortgage, which means the higher rate would apply only to the new loan. Other times the entire first mortgage is refinanced while the borrower takes on additional debt. In this case, the higher rate would apply to the entire loan.

If you are using the equity debt for home improvements, carefully analyze your finances and make sure you’ll be able to handle the additional monthly expense.
If you have good credit, a homeowner, your mortgage is paid on time every month and you are thinking about borrowing money, the home equity route may be the way to go.

What this allows is suppose your home is worth substantially more than your current mortgage, for example, your mortgage is for 100,000 but your home is worth 200,000, you will have an equity of 100,000 in the value of your home that you can borrow against.

Unlike a home equity line of credit, a 2nd mortgage is a fixed amount of money that you borrow against the equity in your home. A second mortgage does not change the interest rate on the amount still owed on your home. It is a completely separate loan from your 1st mortgage.

Generally 2nd mortgages carry a higher interest rate than first mortgages regardless of whether they are fixed rate or adjustable rate. The lump sum cash that you get can be used for many things such as home improvements or debt consolidation. Just like with a 1st mortgage you should comparison shop for the best rates at sites like LoanWeb, LendingTree or E-Loan.