A recent story in the Wall Street Journal illustrates how risky second mortgages can be. Also known as home equity loans, these are loans you get against the value of your home.
CoreLogic found that homeowners who used second mortgages are more likely to be underwater, and they're deeper underwater. Home prices have fallen for just about everybody, but the damage is greater for those who took cash out.
Home equity loans are not necessarily bad -- sometimes it makes sense to use one for home improvement, higher education, or medical emergencies. However, the risk of having access to a large loan is that you may be stuck with it when you want to sell your home. These loans are generally recourse loans, meaning lenders can do more than just take your home in foreclosure -- they can come after you for any unpaid balance even after foreclosure.