If you have owned a home for any length of time then you know that unexpected expenses arise that require you to use the equity in your home for cash. Doing this is what a mortgage is really about, it is the ever changing amount that you actually owe on the home and the amount of equity you actually have in the home.

Most first time home owners find it necessary to put down a down payment on their first home and then have a mortgage company lend them the additional amount they need to buy the home. Then you choose between a fixed rate and an adjustable rate mortgage. The mortgage is the transaction between the buyer and the lender. If the lender has the only lien on the property, they are named the first mortgage holder.

With a first mortgage you generally owe more debt then you have equity in the home. With each monthly mortgage payment you make, you slowly decrease your debt and increase your equity. This goes on until the debt is completely paid in full.

As you gain equity in your home and would like to cash out the equity you can apply for a second mortgage. This allows you to get to the money tied up in your home and use it for other things like a college education for your kids or for home repairs. This is called a second mortgage because the home was already used as collateral for the previous mortgage.

The holder of the second mortgage has a little more risk involved in lending you the money because all rights goes to the first mortgage holder, then to the 2nd mortgage holder. That means if you default on your payments and the home is repossessed the first mortgage holder gets paid first, and whatever money remains goes to the 2nd mortgage holder. Because of the larger risk involved in 2nd mortgages, they usually have a higher interest rate than your original mortgage.

When determining whether to take out a second mortgage make sure that you look at all available options. Make sure that you can get what you need out of the house without adding too much financial risk to yourself. Go through all the preparations that you did with your first mortgage, shop the interest rates, points and fees. The terms of the second mortgage can make a huge difference in the amount of money required to pay for using your home's equity.

With a first or second mortgage you are increasing your debt and decreasing your equity. A reverse mortgage has a different focus.

Many people use a reverse mortgage to tap into the equity of their home without having to repay the loan on a monthly basis. There are several ways that a reverse mortgage gives you your money. You can receive monthly payments, get it all in a lump sum, or use it as a credit account. This way you can decide how and when you receive your cash. You never have to make a payment to repay the loan as long as the owner/s of the home still live at the address. If you move or pass away then the loan will need to be repaid.

Not every home owner will qualify for a reverse mortgage. First, you must own the home and be a minimum of 62 years old. It is thus a great option for older home owners that are cash poor and equity rich.

Owning a home can have some advantages like being able to use the equity in your home as you see fit. Make sure that you always read and understand all the terms involved whenever you are using your home as collateral.