What is a common disadvantage of a second mortgage?

A common disadvantage of a second mortgage is that it typically comes with higher interest rates compared to first mortgages. This is primarily due to the increased risk that lenders take on when providing a second mortgage. In the event of default, the first mortgage will be repaid first from the proceeds of a property sale, leaving the second mortgage lender at greater risk of not recovering their loan amount. Higher interest rates reflect this risk, making second mortgages more expensive for borrowers over time.

While lower loan amounts can be a consideration, second mortgages do not inherently have lower limits than first mortgages. Availability only for commercial properties is incorrect since second mortgages can also be used for residential properties. Additionally, while tax benefits can vary, homeowners often still maintain some tax-deductible status for interest paid on second mortgages, depending on how they use the funds. Thus, the higher interest rate is what consistently defines a significant drawback in taking out a second mortgage.