Homeownership comes with one powerful financial advantage: equity. Once you’ve built equity in your home, you can borrow against it for major expenses like renovations, debt consolidation, or education. But here’s where many homeowners get confused: What’s the difference between a second mortgage and a home equity loan?
While the terms are sometimes used interchangeably, they’re not the same thing. In this guide, we’ll break down what each option means, how they work, and which one might be the better fit for your financial goals.
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What is a second mortgage?
A second mortgage is an additional loan you take out on your home while still paying off your first mortgage. It’s called “second” because it’s subordinate to your primary loan – if foreclosure happens, the first lender gets paid back first.
Key features
- Uses your home as collateral.
- Typically offers a lump sum of money upfront.
- Paid back in fixed monthly installments, often with a set term (10–30 years).
Pros
- Access to large amounts of money.
- Fixed payments make budgeting easier.
- Interest rates are usually lower than personal loans or credit cards.
Cons
- Adds another monthly payment on top of your existing mortgage.
- Higher risk for the lender means slightly higher interest rates than your first mortgage.
- If you default, you risk foreclosure.
What is a home equity loan?
A home equity loan is technically a type of second mortgage – but it has its own specific structure.
Key features
- Provides a lump sum of money upfront, like a traditional loan.
- Fixed interest rate, fixed monthly payments.
- Loan terms typically range from 5 to 30 years.
Pros
- Predictable payments.
- Lower rates than unsecured loans.
- Ideal for one-time expenses (e.g., a major renovation or medical bill).
Cons
- Less flexible than a HELOC (Home Equity Line of Credit).
- Closing costs (2–5% of the loan).
- Your home is collateral, so risk remains.
Second mortgage vs. home equity loan: what’s the difference?
Here’s where it gets tricky: many people use the term “second mortgage” broadly, while a home equity loan is a specific product within that category.
| Feature | Second Mortgage | Home Equity Loan |
| Definition | Any loan taken after the first mortgage | A type of second mortgage with lump-sum cash |
| Structure | Can be lump sum or line of credit | Always lump sum, fixed payments |
| Interest rate | Usually higher than first mortgage | Fixed, slightly higher than first mortgage |
| Repayment | Fixed payments or variable (if HELOC) | Fixed payments |
| Best for | Big expenses, debt consolidation | One-time major costs |
Simplified: All home equity loans are second mortgages, but not all second mortgages are home equity loans.
When to choose a second mortgage (home equity loan)
- Renovations: Kitchen remodel, new roof, or home addition.
- Debt consolidation: Replacing high-interest credit card debt with lower-interest home equity borrowing.
- Large one-time expenses: Education, medical bills, or a wedding.
When not to choose one
- If you already struggle with your current mortgage.
- If your home value is declining.
- If you may need flexibility (in which case a HELOC might be better).
Second mortgage vs. HELOC: a quick note
Since many people confuse the terms, here’s a quick clarification:
- Home equity loan = Lump sum, fixed payments.
- HELOC = Revolving line of credit, like a credit card secured by your home.
- Both are considered second mortgages since they’re in addition to your first loan.
Costs to expect
Like any loan, second mortgages and home equity loans come with fees:
- Closing costs: 2–5% of the loan amount.
- Appraisal fees: $300–$600.
- Possible origination fees.
FAQs
Is a home equity loan the same as a second mortgage?
Not exactly. A home equity loan is one type of second mortgage, but not all second mortgages are home equity loans.
Which has better rates – a second mortgage or a HELOC?
It depends on the lender and your credit. HELOCs often start lower but can fluctuate; home equity loans are fixed.
Can I have two mortgages at once?
Yes. Many homeowners carry both a primary mortgage and a second mortgage/home equity loan.
Is it risky to get a second mortgage?
It can be. If you default, you risk foreclosure. That’s why it’s best used for investments that improve financial stability, like home upgrades or debt payoff.
Conclusion: Choose the loan that fits your goals
Both second mortgages and home equity loans allow you to tap into the value of your home, but understanding the difference is key. A second mortgage can be structured in different ways, while a home equity loan is specifically a lump-sum product with fixed payments.
At Arrive Realty & Finance, we help homeowners weigh the pros and cons, compare options, and decide which type of financing aligns with their needs. Whether you’re upgrading your home or consolidating debt, we’ll make sure your equity works for you – not against you.
Contact us today to explore your home equity options and make the smartest financial move for your future.
