What is the difference between a home equity and a second mortgage?

While both a Home Equity Line of Credit or HELOC and a Second Mortgage are additional mortgagees on your house, the difference between them is how the funds are paid out and how the loans are managed by the lending institution.

A Home Equity Line of Credit, or HELOC, works as a revolving line of credit with the equity built up in your house as collateral. The credit is available for ten years, known as the Draw Period in which you are only responsible for interest payments. Once the ten years has passed, you enter the twenty-year repayment period where you can no longer draw on the line and are responsible for interest and principle payments. The amount of the payment is determined by your rate and the amount you owe.

Like a HELOC, a Second Mortgage is also a loan that uses your home as collateral though it has many differences. When a second mortgage is opened, the amount of the loan is paid out up front in one lump. The payment amount is set and doesn’t waver.

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