Second Mortgage vs Home Equity Loan

By Bill Lyons | Published on February 26, 2025

Let’s break down the differences between a home equity loan vs second mortgage and also explore when a HELOC might be your best bet. Discover these key differences to find the solution that works for your financial goals.

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’re a freelancer or gig-worker, consider the self-employed home equity loan.

This option is designed specifically for non-traditional income streams and allows you to leverage your home’s equity through bank statements.

Ultimately, home equity loans offer predictable payments, a fixed term up to forty years, and often lower interest rates compared to credit cards or personal loans. However, it’s important to remember that your home serves as collateral so missing payments could lead to foreclosure.

Is a Home Equity Loan the Same as a Second Mortgage?

Essentially, yes­, 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.

When comparing a second mortgage vs. home equity loan, the main takeaway is that a home equity loan is a structured, lump-sum loan with fixed interest rates and predictable monthly payments. For example, if you need $30,000 for a kitchen remodel, a home equity loan gives you the money upfront, and you’ll repay it in consistent installments over a set term.

People often use the terms interchangeably because home equity loans are among the most common second mortgage options. However, not all second mortgages are home equity loans. A home equity line of credit (HELOC), for instance, is another type of second mortgage.

So, while a home equity loan is always a second mortgage, not every second mortgage is a home equity loan. Understanding the differences can help you decide which option best fits your financial needs.

Home Equity Loan vs HELOC

A home equity line of credit, or HELOC, is another flexible way to borrow against your home’s equity. However, 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.

So, is a HELOC a second mortgage? Yes, it is. Like a home equity loan, a HELOC is secured by your home, making it another type of second mortgage.

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.

For example, if you’re planning renovations and want access to funds as you go, a HELOC might be the better choice. However, if you prefer stability and predictability, a HELOAN could be a smarter fit. The nuances of HELOAN vs. HELOC options ensure you choose the best solution for your situation.

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.

One common reason people borrow against their homes is for major home renovations. If your kitchen or bathroom needs a remodel, accessing tappable equity through a second mortgage or home equity loan can help you make those improvements without dipping into savings.

Another reason to tap into your home’s equity is to consolidate high-interest debt, such as credit cards or personal loans. You might be able to secure a lower interest rate with a HELOAN or HELOC, simplifying your payments and saving money in the long run.

You might also consider tapping into your home’s equity to cover unexpected medical expenses, education costs, or even to start a business. A HELOC, for example, can give you flexible access to funds over time, perfect for covering ongoing costs or unpredictable situations.

Whether you’re looking at a home equity loan or weighing the differences between HELOC vs second mortgage options, understanding how you want to use the funds can help guide your decision. Your home’s equity can be a powerful tool when used responsibly to help achieve your financial goals.

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.

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.

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.

Bill Lyons

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 22 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 10 years in business.