HELOC vs. Second Mortgage: What’s the Difference?

Two ways to borrow against the value of your home

Two people talk with a loan officer.

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Both a home equity line of credit (HELOC) and a second mortgage (such as a home equity loan) let you borrow against the value of the home equity that you’ve accumulated. They both use your home as collateral.

However, a HELOC allows you to draw money from a line of credit, while you get a lump sum if you take out a second mortgage. With a second mortgage, the repayment period, interest rate, and monthly payment amounts are usually fixed.

With a HELOC, the interest rate and monthly payments can change over time. In addition, the repayment period for a second mortgage is usually shorter than the repayment period for a HELOC.

Key Takeaways

  • A HELOC is a line of credit, so you can decide how much to borrow over time, while a second mortgage is a one-time loan.
  • The repayment period for a second mortgage generally ranges from five to 10 years, while the repayment period for a HELOC can last up to 20 years.
  • HELOC payments and interest rates can change, while second mortgages usually have set interest rates and monthly payments.
  • Alternatives to HELOCs and second mortgages include cash-out refinance loans, personal loans, and home improvement loans.

What’s the Difference Between a HELOC and a Second Mortgage?

HELOC Second Mortgage
The borrower gets a line of credit with a credit limit that can be used over time. The borrower typically receives all of the money in a lump sum.
Borrowers are typically offered no more than 20 years to repay the debt. The payoff period normally lasts five to 10 years.
The interest rate usually is variable. The interest rate is usually fixed.

Loan Proceeds

Perhaps the most obvious difference between a HELOC and a second mortgage is how you get the money. With a HELOC, you’re assigned a line of credit by a lender, and you can borrow against the credit limit over a certain period. By contrast, someone who takes out a second mortgage normally receives all of their money in one lump sum.

Repayment Period

Another difference is the repayment period. Generally, the payoff period for a HELOC can be as long as 20 years. The payoff period for a second mortgage is usually five to 10 years.

Interest Rate

The interest rate for a HELOC might vary over time, while the interest rate for a second mortgage generally is fixed. As such, the monthly payments for a HELOC might change, but you’ll usually pay the same amount each month with a second mortgage.

Special Considerations

When you’re comparing a HELOC and a second mortgage, take a look at a couple of factors related to the interest:

  • The annual percentage rate, or APR, for each of these is different. With a HELOC, the APR is based only on the interest, but the APR for a second mortgage includes interest, points, fees, and other charges.
  • When you take out a HELOC, you pay interest only on the amount of the line of credit that you actually use, and not the full amount you’re allowed to use. That means if you decide you need less money later, you won’t need to pay interest on any money you didn’t use. For a second mortgage, you pay interest on the entire lump-sum amount that you receive, even if you don’t need to use the full amount.

Which Is Right for You?

A HELOC might be right for some people, whereas a second mortgage might be right for others.

A HELOC could be right for you if:

  • You want the ability to borrow money over time.
  • You think you could benefit from a variable-rate loan whose interest rate and monthly payments might go down.
  • You don’t mind a repayment period that could last 20 years.
  • You’re not exactly sure how much money you might need.

 A second mortgage could be right for you if:

  • You would prefer to get all of your borrowed money at once.
  • You want to stick with a fixed interest rate and fixed monthly payments.
  • You would like a short repayment period, typically five to 10 years.
  • You have a pretty good idea of how much money you need to borrow.

Alternatives to HELOCs and Second Mortgages

HELOCs and second mortgages aren’t the only lending products you can use to pay for major expenses.

Personal Loan

Personal loans normally don’t require collateral, unlike HELOCs and second mortgages. Loans that require collateral are secured loans, and loans that don’t require collateral are unsecured loans. Unsecured loans often allow borrowers to take out more money at a lower interest rate.

Home Improvement Loan

The interest rate for a home improvement loan might be in line with the interest rate for a HELOC or second mortgage. However, the rate for a HELOC may change over time, while the rate for a second mortgage or home improvement loan usually is fixed.


A home improvement loan usually doesn’t require collateral. HELOCs or second mortgages are loans secured by your home.

Cash-Out Refinance Loan

When you take out a cash-out refinance loan, you’re replacing your existing mortgage with a new mortgage. If you’ve got enough equity in your home, your cash-out refinance loan will pay off your current mortgage and provide the difference in a lump sum of cash.

HELOCs and second mortgages are separate loans with their own terms, while a cash-out refinance replaces your existing mortgage and allows you to access the equity in your home. You can also use a cash-out refinance to pay off a second mortgage, so you can go back to making just one monthly payment.

A cash-out refinance does mean you’ll either be paying more each month or lengthening the term of your mortgage. That said, you’ll typically be able to get a lower interest rate than you did on your first mortgage.

You’ll need to determine your priorities before taking out either a second mortgage or a cash-out refinance.

The Bottom Line

The big difference between a HELOC and a second mortgage is that a HELOC enables you to borrow money over time, whereas a second mortgage typically gives you proceeds from the loan all at once. In addition, a second mortgage generally comes with a shorter repayment period and a fixed interest rate, while a HELOC usually has a longer repayment period and a variable interest rate.

When weighing whether to get a HELOC or second mortgage, you’ll want to consider whether you want a lump sum of money or a line of credit and whether you’d prefer a fixed interest rate or are OK with an interest rate that could move up or down.

Frequently Asked Questions (FAQs)

How much can you borrow on your second mortgage or home equity loan?

Borrowing limits vary from lender to lender. However, you usually should be able to borrow as much as 80% to 85% of your home’s equity when you obtain a second mortgage or home equity loan. Your borrowing ability is also based on factors such as your credit score and debt-to-income ratio.

What is the best way to finance a second home?

How you finance a second home depends on your situation. If you don’t have enough money for a down payment, you can use your main residence as collateral to take out a HELOC or second mortgage to pay for a down payment on a second home. If you’ve built up enough equity in your first home, you can use a cash-out refinance and use the extra money to cover the down payment.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Federal Trade Commission. “Home Equity Loans and Home Equity Lines of Credit.”

  2. Discover. “How Home Equity Loan & HELOCs Work: Rates, Terms and Repayment.”

  3. QuickenLoans. “ Home Equity Loans: What Are They and How Do They Work?

  4. Rocket Mortgage. “Home Equity Line of Credit (HELOC) Defined and Explained.”

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