Lower your mortgage today:


---

How This Works

  • Fill out our simple form
  • Get up to 4 free quotes
  • No credit check and no obligation
---

Consolidate Your Debt

$160,000 loan for under $634/mo. Several options.
---

Historic Low Refi Rates

Compare loan rates from top lenders. Save now!
---

Search more topics…

Compare Mortgage Rates
From Top Lenders

Type of Loan
Property State
Home Description
Your Credit Profile
Note: Your credit profile will not be run for this inquiry.
---

More Topics…



 ---

Second Mortgage versus Home Equity Loan

Got bad credit?

Compare rates from up to 4 lenders for refinancing loans.

A second mortgage is any loan that involves a second lien on the property. Some second mortgages are for a fixed dollar amount paid out at one time, in the same way as a first mortgage. As with firsts, such seconds may be fixed-rate or adjustable-rate.

When second mortgages appeared in 1980s, they were structured as a line of credit rather than for a fixed dollar amount. Borrowers could draw up to some amount, when and as they pleased. These loans were called "home equity loans" or "home equity lines of credit", with the latter shortened to HELOC. They are always adjustable rate. Home equity loans are paid off over a shorter period than mortgages, which increases the monthly mortgage payments. Since you can make additional principal payments on the refinancing to bring down the loan balance, the shorter term of the home equity loan isn't an advantage. A home equity line of credit (HELOC) is revolving credit, so you can pay off the home repairs and borrow against the line again without having to take out another loan. Since the interest on personal loans isn't tax deductible and the interest expense on a mortgage or home equity loan typically is tax deductible you can save money by using the revolving credit line. A HELOC is a variable-rate loan, and minimum monthly payments won't amortize the loan. You have to have the financial discipline to make monthly payments that will pay off the loan over its term. Otherwise, you end up with a rather nasty balloon payment due at the end of the loan. The payment presented for the HELOC alternative in the table is based on the rather unrealistic assumption that the interest rate never changes, but it will pay off the loan over its 15-year life. Finally, if you can use the interest-expense deduction on the home equity loans, you should be able to use the deduction on the cash-out refinancing. IRS Publication 936 has the complete information on home mortgage interest deductions.