If you’ve built up equity and want cash for renovations, debt consolidation, or a large expense, you’ll quickly run into two options that sound similar: second mortgages and home equity loans. While the terms overlap, they aren’t identical.
This guide from Sprint Funding breaks down how each works, where they differ on rates and repayment, what risks to watch for, and how to decide which one fits your budget and timeline.
Table of Contents
- Key Takeaways
- What is a “Second Mortgage”?
- Home Equity Loan vs. HELOC: The Real Difference
- Costs, Fees, and Appraisals
- Tax Treatment: When Is Interest Deductible?
- Risks to Know Before You Borrow
- Which Option Fits Your Situation?
- How Sprint Funding Can Help
- FAQs
Key Takeaways
- A second mortgage is the category; home equity loans and HELOCs are the common forms. Lump sum vs revolving access is the core difference.
- Your credit, equity, and lender program drive your actual offer.
- Expect 1–5% in closing costs and read fee schedules carefully.
- Interest is tax-deductible only for qualified home uses and when you itemize.
- Borrow with a clear plan. Your home is the collateral.
What is a “Second Mortgage”?
A second mortgage is any new loan secured by your property in addition to your first mortgage. Because it’s recorded after the first loan, it sits behind it in lien priority.
Most second mortgages take one of two forms: a home equity loan or a home equity line of credit (HELOC).
Home Equity Loan vs. HELOC: The Real Difference
Home Equity Loan (a type of second mortgage)
- Structure: One-time lump sum.
- Rate: Commonly fixed.
- Payment: Predictable monthly payment over a set term.
- Best for: Large, defined expenses with a clear budget (for example, one major renovation or fixed debt payoff).
Authoritative consumer guidance describes a home equity loan as a lump sum that may carry a fixed or adjustable rate, but fixed is typical for easy budgeting.
HELOC (Home Equity Line of Credit)
- Structure: Revolving line you can draw from as needed up to a limit.
- Rate: Usually variable, tied to prime or an index.
- Phases: A draw period (often up to 10 years) followed by a repayment period (often up to 20 years).
- Best for: Projects that span time or costs that come in stages (multi-phase remodels, tuition over semesters), or for disciplined debt consolidation.
A home equity loan offers stability and one-time funding; a HELOC offers flexibility and on-demand access. Both are second mortgages when you already have a first loan.
Costs, Fees, and Appraisals
Expect closing costs in the 1–5 percent range of the borrowed amount. You may see an appraisal, title work, origination fees, and state-specific charges.
HELOCs can carry ongoing fees such as annual or inactivity fees, even if upfront costs are lighter. Compare the APR to capture fees plus rate.
Tax Treatment: When Is Interest Deductible?
The IRS allows a deduction for interest on home equity loans and HELOCs only when the money is used to buy, build, or substantially improve the home that secures the loan and you itemize deductions.
Using funds for debt consolidation or non-home purposes generally does not qualify. Always confirm with a tax professional.
Risks to Know Before You Borrow
- Foreclosure risk: Both products are secured by your home. Falling behind can lead to foreclosure.
- Variable-rate exposure (HELOC): Payments can rise if rates rise.
- Overborrowing: Consolidating high-interest debt into home equity can lower the rate, but if spending habits don’t change, balances can rebuild at higher risk to the home.
Which Option Fits Your Situation?
Use these quick lenses to decide:
Choose a Home Equity Loan if you want…
- A single payout for a well-scoped project or payoff plan.
- A fixed rate and fixed payment for simple budgeting.
- Shorter terms (5–15 years) to retire the debt on a set schedule.
Choose a HELOC if you want…
- Flexible access over time with multiple draws.
- The option to borrow only what you use during the draw period.
- Potentially lower upfront costs, with awareness of variable rates and possible fees.
How Sprint Funding Can Help
Every borrower’s situation is different. If you want a side-by-side quote with payment projections, payoff timelines, and closing cost breakdowns, Sprint Funding can map the numbers to your goals and help you compare a fixed home equity loan against a flexible HELOC. We’ll walk through CLTV, credit factors, fee structures, and tax-rule basics so you can move forward with clarity.
Call Sprint Funding or request a consultation online to compare offers today.
FAQs
Is a home equity loan the same as a second mortgage?
Often, yes. A home equity loan is a type of second mortgage when you already have a first mortgage on the home. A HELOC is also a second mortgage in that case.
What credit score and equity do I need?
Requirements vary by lender. Many lenders prefer at least 15–20 percent remaining equity after you borrow and solid credit. Check lender guidelines and your combined loan-to-value (CLTV). (General guidance; verify with your lender’s current criteria.)
Can I deduct the interest?
Only if the money is used to buy, build, or substantially improve the home that secures the debt and you itemize. Non-home uses usually don’t qualify.
What should I watch during closing?
Total closing costs (1–5 percent), prepayment penalties, draw rules (HELOC), and any annual or inactivity fees. Compare the APR, not just the rate.
