A second mortgage is a blanket term that refers to both home equity loans (HELOANs) and home equity lines of credit (HELOCs), two distinct home equity products. A home equity loan is a specific type of mortgage product that allows homeowners to borrow a lump sum against the equity they have in their home. Below we compare home equity loans and HELOCs vs second mortgages, and discuss which products might be suitable for different borrowers.

What Is a Second Mortgage?

A second mortgage is a loan you take out against the equity in your home while keeping your first mortgage in place. Equity is the difference between what your home is worth and how much you still owe on it.

For example, if your home is valued at $300,000 and you owe $200,000 on your first mortgage, you have $100,000 in equity. A second mortgage lets you borrow a portion of that equity, often up to 80%.

Ultimately, a second mortgage acts as an umbrella term for any loan secured by a property already mortgaged. This includes home equity loans (HELOANs) and home equity lines of credit (HELOCs), which are both types of second mortgages. These loans can be helpful when you need funds for significant expenses like renovations, debt consolidation, or education.

However, it’s important to approach a second mortgage with care. Adding another loan to your property increases your financial obligations and could put your home at risk if you cannot make payments. When used wisely, a second mortgage can be a valuable tool for achieving financial flexibility.

What Is a Home Equity Loan?

A home equity loan is a way to borrow money using the equity in your home as collateral. Since equity is the difference between your home’s value and what you owe on your first mortgage, a home equity loan lets you tap into that value to fund major expenses.

You typically need at least 15-20% equity in your home and a solid credit history to qualify for a home equity loan. Lenders will also evaluate your income, debt-to-income ratio, and property value. If you apply for a self-employed home equity loan, lenders will evaluate bank statements in lieu of traditional income documentation.

Home equity loans offer:

  • A lump sum of cash
  • Predictable payments
  • A fixed term up to 40 years
  • Lower interest rates compared to credit cards or personal loans

Home Equity Loan vs HELOC

A home equity line of credit, is another flexible way to borrow against your home’s equity. Instead of receiving a lump sum like with a HELOAN, a HELOC functions like a credit card. You’re approved for a credit limit, and you can borrow as much or as little as you need during the draw period. This makes it ideal for ongoing or unpredictable expenses, such as medical bills or a series of home improvement projects.

The key difference is flexibility when comparing a HELOC vs other second mortgage options like a HELOAN. While a HELOAN gives you fixed monthly payments and a set interest rate, a HELOC often comes with variable interest rates and payments that depend on how much you borrow. There are fixed-rate HELOC programs available but they require drawing on the line in full at initial funding.

In summary, key features of HELOCs include: 

  • Continuous borrowing 
  • Only repay what you borrow 
  • Defined draw and repayment periods 
  • Typically variable rates (fixed-rate option available)

Why Tap Into Your Home’s Equity?

Tapping into your home’s equity can provide you with the funds you need for various important expenses. Leveraging your home equity can be a flexible way to cover major expenses at a relatively low interest rate. 

Common reasons homeowners tap into their equity include:

  • Home renovations: Fund renovations and repairs, either to your primary residence or an investment property. Increase the property’s value without depleting your savings. 
  • Consolidate high-interest debt: Convert credit card and personal loan debt into a single, low-interest payment using a home equity loan. Check out our free debt consolidation calculator to see what a debt consolidation loan might look like for you. 
  • Emergency expenses: Cover unexpected expenses such as medical bills or emergency repairs.
  • Education costs: Pay for college tuition or continuing education and secure a rate that’s potentially lower than a student loan. 
  • Business expenses: Open or expand your business by tapping into your home’s equity. 
  • Investments: Capitalize on a major investment opportunity or expand your real estate investment portfolio. 

A person types on a calculator while looking at a document with the other hand.

Second Mortgages: Pros and Cons

Taking out a second mortgage can be a great way to access funds when needed, but it comes with benefits and risks. Here’s a quick breakdown of the pros and cons to help you decide if this is the right option for you.

Pros:

  • Access to large sums of money: A second mortgage can provide you with a significant amount of cash, which can be used for home renovations, debt consolidation, or other major expenses.
  • Lower interest rates: Compared to unsecured loans or credit cards, second mortgages often offer lower interest rates, saving you money in the long run.
  • Fixed payment structure (for HELOAN): If you opt for a home equity loan, you get a fixed monthly payment, making budgeting easier and giving you financial stability.
  • Flexible options (for HELOC): If you choose a HELOC, you get a revolving line of credit, offering more flexibility in how and when you borrow funds.
  • Tax benefits: For tax years before 2018 and after 2025, homeowners may be able to deduct HELOAN or HELOC interest no matter what the funds are used for. For the intervening tax years, HELOAN and HELOC interest can be deducted if funds were used to buy, build, or substantially improve the residence. 

Cons:

  • Risk to your home: Since your home secures the loan, missing payments can result in foreclosure.
  • Additional debt: A second mortgage adds another layer of debt, potentially stretching your finances if you’re not careful.
  • Variable interest rates (for HELOC): With a HELOC, interest rates can change, leading to unpredictable monthly payments. However, you can get a fixed-rate HELOC to make more predictable payments.

Access Your Home’s Tappable Equity

When tapping into your home’s equity, understanding the differences between a second mortgage, home equity loan, and HELOC is key to making the right choice. Whether you’re looking for predictable payments with a home equity loan or the flexibility of a HELOC, you have options that can support your goals.

Griffin Funding can guide you through these decisions with ease. The Griffin Gold app simplifies mortgage planning, budgeting, and credit management. It’s the perfect tool to help you confidently navigate your financial journey.

Start exploring your options today! Reach out to our team and we can evaluate your unique circumstances to help you determine the best method for tapping into your home’s equity.

Find the best loan for you. Reach out today!

Get Started

Frequently Asked Questions

Is a home equity loan the same as a second mortgage?

A home equity loan is a type of second mortgage. The term “second mortgage” refers to any loan secured by the equity in your home while a first mortgage is still in place. A home equity loan fits within this category and is often what people mean when they talk about taking out a second mortgage.

Is a home equity loan cheaper than a HELOC?

In some cases, a home equity loan can be cheaper than a HELOC. This is especially true if interest rates are rising, since most HELOCs are adjustable-rate loans that are tied to market conditions. When comparing HELOC vs second mortgage rates, home equity loans tend to stand out because they typically come with fixed rates, ensuring predictable, consistent monthly payments. 

However, whether a HELOAN or HELOC costs more ultimately comes down to factors such as: 
  • The interest rate you’re able to secure 
  • Your HELOC utilization rate 
  • Lender fees and closing costs

What’s the difference between a second mortgage and refinancing?

A second mortgage allows you to borrow money that’s secured by your property without touching your primary mortgage. This can be beneficial if you want to hold on to the low rate on your first mortgage and are happy with the terms of your loan. 

Alternatively, refinancing replaces your existing mortgage with a new one. This allows you to alter your rate or term (rate-and-term refinance), tap into your home equity (cash-out refinance), or potentially alter your rate while also pulling some cash out of your home.

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 24 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 12 years in business.