Homeowners often use their home’s equity to fund big goals like renovations, college tuition, or debt consolidation. Two popular options are a second mortgage and a HELOC. Though they sound similar, they work very differently.

What Is a Second Mortgage?

A second mortgage lets you borrow a lump sum using your home’s equity as collateral. You get the money upfront and repay it through fixed monthly payments over a set term—usually 10 to 30 years. It’s ideal for large, one-time expenses like home remodeling or paying off high-interest debt.

What Is a HELOC?

A Home Equity Line of Credit (HELOC) works more like a credit card. You can borrow money as needed up to a certain limit, pay it back, and borrow again during the draw period. Interest rates are usually variable, which means your payment can change over time.

Key Differences

1. Payment Structure: A second mortgage has fixed payments, while a HELOC’s payments vary.
2. Flexibility: HELOCs offer flexibility for ongoing expenses, but a second mortgage provides stability.
3. Interest Rates: Second mortgages often have slightly higher fixed rates, while HELOCs may start lower but can rise later.

Which One Is Right for You?

If you need a lump sum for a clear purpose, a second mortgage is straightforward and predictable. If you want flexibility like funding home repairs over time, a HELOC might be better.

Understanding these two options helps you use your home equity wisely. Whether you choose a second mortgage for stability or a HELOC for flexibility, both can be powerful tools for managing your financial goals and unlocking the value of your home.