Second Mortgage vs. Home Equity Loan vs. HELOC: What’s the Difference?

If you’re a homeowner who wants to tap into your home equity, you have several options. Below, we’ll compare a second mortgage versus a home equity loan and a second mortgage versus a HELOC. Depending on why you want to get financing and your personal preferences on interest rate and repaying the loan, you’ll likely prefer one of these options over the other.

We’ll also share our top picks for reliable lenders and current information about interest rates to help you make your decision.

Table of Contents

1. Is there a difference between a HELOC vs. home equity loan vs. second mortgage?
2. What is a second mortgage vs. home equity loan?
3. What is a second mortgage vs. HELOC?
4. How to choose between a closed-end second mortgage vs. open HELOC

Is there a difference between a HELOC vs. home equity loan vs. second mortgage?

“Second mortgage” is an umbrella term that describes getting a new loan in addition to your primary mortgage loan. Like your primary mortgage, a second mortgage also uses your home as collateral. A home equity loan and a home equity line of credit (HELOC) are both types of second mortgages. 

Home equity loan

With a home equity loan, you get a lump sum after a lender approves you. Then you pay back the loan in equal monthly payments over a set term—for example, five years. As we mentioned, a home equity loan uses your home as collateral for the loan. So if you default on payments, your lender could foreclose on your home.

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Is a Home Equity Loan a Good Idea?

HELOC

A home equity line of credit (HELOC) is similar to a credit card in that it’s a revolving credit line. If approved for a HELOC, you’ll get access to a line of credit up to a certain limit. You can use that line of credit for whatever you need and pay it down to create more space and use it again.

Most HELOCs have variable interest rates, which means your rate could rise or fall depending on the prime rate.

What is a second mortgage vs. home equity loan?

Second mortgages tend to fall under two categories: a closed-end second mortgage or an open second mortgage. A closed-end second mortgage means you take out an additional mortgage on your house for a fixed monthly payment with a set interest rate. 

Home equity loans are closed-end second mortgages.

Is a closed-end second mortgage good or bad?

The benefit of a closed-end second mortgage is that your monthly payments are predictable. The downside is that if interest rates drop, your payment doesn’t change because your interest rate is fixed. As of December 2024, the U.S. had $512 billion in outstanding home equity loans, according to the Federal Reserve Bank of St. Louis.

Another distinctive aspect of a closed-end second mortgage is that you borrow a set amount. Once your lender distributes your funds, you can’t access more funds unless you take out another type of loan. An open second mortgage—such as a HELOC—allows you to borrow more up to your credit limit once you pay down your balance.

An open second mortgage is often better for ongoing expenses—home renovations, for example—and a closed-end second mortgage can be better for one-time fixed costs, including consolidating high-interest debt.

Second mortgage vs. home equity loan rates

Because a home equity loan is a type of second mortgage, second mortgage rates and home equity loan rates will be the same. It’s essentially the same product under two different names. Home equity loan rates tend to be fixed, which is helpful for consumers who want predictability and the ability to budget every month.

The chart below showcases typical interest rates from home equity loan lenders we recommend.

Lender	Rate
Spring EQ	Starting at 9.50%
Navy Federal Credit Union	Starting at 7.34%

What is a second mortgage vs. HELOC?

A HELOC is another example of a second mortgage because it’s a loan you take out in addition to your primary mortgage. However, unlike a home equity loan, a HELOC is an open second mortgage. The interest rate is usually variable and can change based on economic factors. 

Because a HELOC is a line of credit, many don’t require you to take a full lump sum from your lender. Instead, you get access to money up to a certain limit. You can also pay down your balance during the draw period and then use the line of credit again. The U.S. had around $386 billion in outstanding HELOCs as of December 2024, according to the Federal Reserve.

Typically, HELOC lenders charge interest-only payments during the draw period, which can last two to 20 years. Your monthly payment will depend on your rate and the amount of credit you use. Many people appreciate the flexibility of a HELOC because it means you can borrow money as needed.

Second mortgage vs. HELOC rates

HELOCs are a type of second mortgage, so there is no difference between second mortgage interest rates and HELOC rates. Interest rates can differ between closed-end second mortgages, such as the home equity loan rates mentioned above, and HELOCs because HELOCs are variable rates.

Here are the lenders we recommend for HELOCs, along with current interest rates. Note that two of these lenders offer fixed-rate HELOCs for the full length of the loan. 

Lender	Rate	Open or closed-end?
Figure	6.55% – 15.95% fixed	Closed-end
Aven	6.99% – 15.49% fixed	Closed-end
Bethpage	Fixed 12-month intro rate of 6.99% for VantageScores of 720 and up; then a variable rate	Open (after 12-month intro period)

If you have a variable-rate HELOC, when interest rates are lower, you’ll benefit from borrowing money with less interest costs. However, it also works in reverse, where you can pay more if interest rates increase. Variable HELOC rates change when the prime rate changes because of the federal funds rate. 

How to choose between a closed-end second mortgage vs. open HELOC

Choosing between a closed-end second mortgage—a home equity loan—and a variable-rate HELOC will depend on a few factors. First, decide whether you want set monthly payments or are comfortable with varying monthly payments. Depending on your cash flow, income, and risk tolerance, you might prefer one over the other.

Decide why you need a second mortgage. If you want to consolidate debt, a closed-end second mortgage might be better than a HELOC because you would get a lump sum payment to pay off higher-interest debt.

If you prefer flexibility when it comes to borrowing money, a HELOC might be a better choice. You can borrow what you need during the draw period. Plus, many lenders set up variable-rate HELOCs to require interest-only payments during the draw period, which can last a few years. This could give you lower monthly payments in the beginning.

Choosing between a home equity loan and a HELOC starts with understanding your budget and loan purpose. A home equity loan is ideal if you need a lump sum upfront, while a HELOC offers lower rates and flexible payments, making it a better choice for ongoing or unpredictable expenses. Also, consider the interest rate environment—if rates may decline, a variable-rate HELOC could save you money.

However, second mortgages aren’t for everyone. If you’re struggling with personal debt or unsure about making payments, avoid risking your home equity. A consolidation loan may be a safer option to manage debt without jeopardizing your home.

Compare rates and lenders

Don’t forget to compare at least three to five lenders before choosing a closed-end second mortgage or a HELOC. Lenders offer different rates and terms depending on your personal situation, income, and credit score.

Some lenders offer a longer draw period for a HELOC. This is useful for certain loan purposes, including home renovations, which homeowners will spend almost $500 billion on by the end of 2025, according to Harvard University data. You might also score benefits or interest rate deductions if you sign up during a promotional period or enroll in automatic payments.

Doing your research and choosing a lender can save you time and headaches when deciding what type of second mortgage is right for you and your financial needs.