<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=1594118447410323&amp;ev=PageView&amp;noscript=1">

Disclaimer

You are now leaving the Independent Bank website.

Linked web pages are not under the control of Independent Bank, its affiliates or subsidiaries. Be aware the privacy policy of the site to which you are going may differ from that of Independent Bank. Independent Bank provides external links as a convenience and is not responsible for the content, accessibility, or security of any linked web page.

Click “OK” to continue or “Cancel” to go back

Ok Cancel
x

Disclaimer

You are now leaving the Independent Bank website.

Linked web pages are not under the control of Independent Bank, its affiliates or subsidiaries. Be aware the privacy policy of the site to which you are going may differ from that of Independent Bank. Independent Bank provides external links as a convenience and is not responsible for the content, accessibility, or security of any linked web page.

Click “OK” to continue or “Cancel” to go back

x Want to chat? How can we help you? open chat
Menu
Search
Locations
Login

Second Mortgage vs. HELOC

By Independent Bank February 28 2019 Mortgage

What are the differences?

Modern style kitchenIf you've found yourself in need of a second mortgage, you've probably run into several loan types. Second mortgages, home equity loans, and home equity lines of credit are all available to individuals who meet credit and equity requirements, but which kind of loan you need will be entirely dependent on why you are seeking out a second loan. 

What is a Second Mortgage?

A second mortgage is any lien on a property that is subordinate to an existing mortgage. For example, if a homeowner finds themselves in need of cash, they can choose to take out a second mortgage for the remaining equity in the home. It is incredibly uncommon for a private property to carry more than two mortgages. 

A second mortgage can be offered as a fixed amount that is paid back over time. This is a traditional second mortgage. The homeowner would be given the full equity amount at the closing of the loan. From there, he or she would be expected to pay back the loan in accordance with the terms outlined during the closing. 

A second mortgage can also be structured as a home equity line of credit. More commonly called a HELOC, this type of loan is stretched out, and the signer can choose to use the entirety of the line at once or stretch out its use over time. While a HELOC can be a second mortgage, they don't necessarily have to be. 

It should be noted that while second mortgages are subordinate to first mortgages, the bank holding a second mortgage can initiate foreclosure proceedings if payments are not made. 

What is a HELOC?

A HELOC, or a home equity line of credit, is a type of mortgage loan that is structured as a line of credit, meaning you don't have to utilize the entire loan amount at once. Instead, you can choose to use only a portion of your home equity line of credit, pay it down, then use more if needed. 

Often people use HELOCs to renovate a home. These lines can be used to, say, refurbish a bathroom, put in a new kitchen, or build a pool in the backyard. While often HELOCs are second mortgages, there is no rule that says you must have an existing mortgage to access a HELOC. 

Some people who own their homes free and clear will utilize HELOCs for unexpected expenses or renovations. In such cases, the HELOC becomes the first mortgage. 

How Do I Know What Type of Loan I need?

The type of the second mortgage you need will be largely dependent on how you plan to utilize the cash. If you need a large sum of money upfront, a traditional second mortgage is likely to work best for you. Not only does it allow you to access a large amount of money all at once, but the payback terms are also set in stone over a long period. This structure is particularly attractive to individuals who are looking to forecast their budget long-term

A HELOC is a good option for individuals who are interested in accessing the available line of credit when needed. If you are planning large scale projects, or you'd like to perform renovations in stages, a HELOC loan is probably a solid choice. 

The best way to know what type of loan will work best for you is to sit down with a mortgage loan officer or banker to discuss your options. A professional who deals in loans every day is an invaluable resource if you still aren't sure what the best option is for your unique situation. 

Join our newsletter!

Latest posts

Private Mortgage Insurance

5 Things you need to know
Read More

Buying a Home at the End of the Year

6 Benefits you should know
Read More

Mortgage Loan Documents

6 You’ll need
Read More

Jumbo Loans

What is needed to get started?
Read More