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


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Answered 2005-10-17 12:36:02

The difference is pretty simple, a 2nd mortgage is just that it's a mortgage that is in 2nd lien position. Basically if god forbid say a forclosure took place, that mortgage doesn't get paid off until the first lien mortgage is cleared. A home equity line of credit or HELOC can also be a 2nd mortgage since it is a lien on the property but it can also be a 1st lien mortgage if your home is completely paid off. A HELOC works like a credit card basically except in this case the house is collateral. A HELOC is basically a revolving line of credit on your home and you use it like a credit card, you make monthly payments which are interest only, you only pay interest on the money you are using at the time. If you take out say a 20,000 heloc and are only using 10,000 of it then you pay interest only on the 10,000, you have a minimum payment like a credit card and you can put money towards the principle to pay it down. Money that is paid off can be used again and this can go on for a 10 year period after which the heloc turns into a 20 year loan and you begin paying it like a normal mortgage, if there is a balance remaining. The rate is usually prime plus a certain percentage which is based on the amount of money being financed, you credit, and the loan to value percentage. It's a great alternative to doing a cash out refinance if you have a good interest rate on your first mortgage, I do many helocs and in most cases I do them with no closing costs at all.

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Related Questions

Can a second secured mortgage loan be discharged?

Yes, if there is no equity in the house to secure that second mortgage, or the equity is less than the exemption.


What is the difference between a fixed second mortgage and one with a variable rate?

The difference between a fixed second mortgage and one with a variable rate is that fixed second mortgage has a fixed rate and is commonly thought of as safer than a mortgage with a variable rate.


What if you pay your first mortgage but not your home equity?

If you have a first mortgage and a home equity mortgage, the home equity mortgage is a second mortgage. If the home equity mortgage is not paid, the lender can foreclose and take possession of the property subject to the first mortgage. The home equity lender can pay off the first mortgage and keep any excess proceeds from a sale.


What is the difference between second mortgages and equity loans?

A second mortgage is a loan that involves a second lien on the property. (The first mortgage is the first lien.) Generally, a second mortgage is for a fixed dollar amount paid out at one time, in the same way as a first mortgage, and can be fixed-rate or adjustable-rate. In the early 1980s, a second type of second mortgage appeared that was referred to as an "equity line of credit," which came to be known as a HELOC. A HELOC allows the homeowner/borrower to draw out money as needed up to a certain amount. HELOCs are always adjustable-rate. In short, both a second and an equity loan are "second mortgages." The rate and manner of disbursement are different. A second mortgage, by virtue of the ability to get it as a fixed-rate loan, would be the better option.


What is the purpose of an equity home loan mortgage?

An equity home loan mortgage is similar to a second mortgage where it is possible to borrow on the equity of a home. This helps reduce financial pressure like facing a foreclosure on a home.


How can you get home equity loan?

A home equity loan is a type of loan in which the borrower uses the equity in their home as collateral. Home equity loans are based on the amount of equity you have built up in your home. (Home equity is the difference between the current value of a home and the amount still owed on the mortgage. As the principal of the mortgage amount decreases as a result of monthly mortgage payments, the home equity increases) You can borrow your loan as a traditional home equity loan (second mortgage) or a home equity line of credit (HELOC), which functions in a similar manner as a credit card. These loans are sometimes useful to help finance major home repairs, medical bills or college education.


Should you get a second mortgage or a home equity line of credit?

Mortgage loans and home equity loans are two different types of loans you can take out on your home. A first mortgage is the original loan that you take out to purchase your home. Second mortgage means cover a part of buying of your home or to cash out some of the equity of your home. It is important to understand the differences between a mortgage and a home equity loan before you decide which loan you should use. Both types of loans have the same tax benefit since you can deduct the interest on each.


How can one apply for a second equity home loan mortgage?

One can apply for a second equity home loan mortgage by visiting a bank and filling out the application. Banks make approval decisions about second home loans according to ones home equity and personal credit rating.


Can you have 2 mortgage loans through same mortgage company?

Yes. Your mortgage company may hold your first (or primary) mortgage as well as a second which may be represented as a home equity loan or a home equity line of credit.


How does a home equity loan work?

It's like a second mortgage on your home. They would evaluate the worth of your house minus the amount owed on the first mortgage and loan you a percentage of the difference. You would have to pay two mortgage payments.


A home equity loan is a lump-sum second mortgage loan made on the available equity in a home?

True, home equity loan.


Is tax on continuing a second mortgage deductible after filing for a first foreclosure?

Even if you have had a foreclosure, tax on a second mortgage or home equity loan is still deductible.


How many payments on 1st mortgage until you can get a 2nd mortgage?

This is not determined by the number of payments you make, it is determined by how much equity you have in the home. If the home is worth more than the outstanding balance on the mortgage, you may be able to get a second mortgage or home equity line of credit.


Where can one find an equity loan second mortgage?

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What is the difference between a first lien and second lien mortgage underwriting process?

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What is the difference between refinancing and a second mortgage?

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Are equity lines of credits taxable?

Generally, yes. They are no different than second mortgage loans.


Can you have 2 first mortgages on 1 property?

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Can a primary mortgage be classified as a home equity loan?

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Is there an equity of redemption for a second mortgage holder in Connecticut?

Equity redemption is a right that only applies to owner/mortgagor/borrower not lender/mortgagee; therefore, the answer is NO.


Where can I go to have reverse mortgage exaplained to me?

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence or fail to meet the obligations of the mortgage.


What is the Difference between a Junior Mortgage and a second mortgage?

The difference is really all in how the loans were originated. A junior mortgage refers to the lien placement on the property title. A second mortgage means a mortgagor has more than one loan on a property with the same lender. For example, If I purchase a home (assuming the title is clean and there are no liens on the title) and get the loan with ABC Bank then ABC Bank is considered the senior mortgage. If I obtain another loan with ABC Bank most commonly a HELOC or Home Equity Line of Credit then it is a second mortgage in second position. Let's say that after I obtained the second loan with ABC Bank, I chose to take out a smaller loan against the property with XYZ Bank. That loan will be considered a junior lien. The loans won't always fall that clean on the title however. You can have a junior lien between a senior lien and second mortgage. In the example above if the XYZ Bank loan was taken out before the second mortgage with ABC Bank then it would still be called a junior lien and the second mortgage with ABC Bank would be the second mortgage with ABC Bank but in third position. Hope that helps!


When would it be necessary for one to take out a second mortgage?

A second mortgage comes in two forms: home equity and lines of credit. It might be necessary to take out a second mortgage to pay for extensive repairs and remodeling or your home, of if you need a line of credit in a emergency.


What happens if you default only on your home equity line but not your first mortgage?

The second mortgagee can foreclose and take possession of your property subject to the first mortgage.


Will mortgage companies aid home owners when insurance company rejects claim after sewer collapse?

NO. The mortgage company does not warranty the purchased home. However, If you have acquired equity in the home you might be able to take an additional loan (second mortgage) on the equity to effect you repairs.