Second Mortgage

A second mortgage is another loan recorded against a house on top of the existing first loan. If the property is foreclosed, the first lender collects in full before the second sees anything. In BRRRR it is an alternative to a cash-out refinance: the investor keeps the existing first loan and borrows against the new equity behind it.

That route makes sense when the first loan has a rate well below today's market, since a cash-out refinance would replace it. A second lien or home equity loan taps equity while leaving the cheap loan in place.

Because the lender stands behind the first mortgage, second liens carry higher rates and lower combined loan-to-value limits. The payment on the second loan also has to come out of the rent, so cash flow after both payments is the number to check before borrowing.

Further reading: Second Mortgage on Wikipedia.