Written and reviewed by Jack Gladden, Senior Loan Officer, NMLS #1470164
Updated · 5-minute read · How these guides are written
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HELOCs and second mortgages in brief
- What they are
- Loans secured by your home’s equity that sit behind your first mortgage, so you keep its rate.
- Two kinds
- A HELOC is a revolving line you draw as needed, usually at a variable rate. A home equity loan or second mortgage is a lump sum, usually fixed.
- How much
- Most lenders let your first mortgage plus the new loan reach 80–90% of your home’s value, often 85%.
- Timeline
- HELOCs usually have a draw period of about 10 years, often interest-only, then a repayment period of 10–20 years.
- Credit
- Many lenders start around 620–680; better scores and more equity get better rates.
- Also for
- Second homes and rental properties, through specialist lenders.
How much you can borrow.
Available equity = home value × lender’s limit − what you owe
The lender’s limit is its maximum combined loan-to-value (CLTV), often 80–90%.
| Example | Amount |
|---|---|
| Home value | $700,000 |
| 85% combined limit | $595,000 |
| Less your first mortgage | −$400,000 |
| Available to borrow | $195,000 |
Illustrative only; the appraisal sets the value, and limits vary by lender, credit and property type.
Want to know your available equity?
Send me your home’s estimated value, your balance and what the money is for. I’ll compare a HELOC, a fixed second and a cash-out refinance.
HELOC or home equity loan?
| HELOC | Home equity loan (second mortgage) | |
|---|---|---|
| How you get the money | Draw as needed, up to your limit | One lump sum at closing |
| Rate | Usually variable, tied to the prime rate; some offer fixed-rate portions | Usually fixed |
| Payments | Often interest-only during the draw period, then principal and interest | Fixed payments from the start |
| Best for | Ongoing or uncertain costs, like renovations | A known amount, like paying off debt |
How the payment works.
- During the draw period
- On an interest-only HELOC, the payment is the interest on what you’ve drawn: the balance times the rate, divided by 12. It changes when the rate or the balance changes.
- After the draw period
- You can’t draw more, and the payment includes principal, so it usually rises noticeably. Plan for that higher payment from the start.
- Home equity loan
- A fixed payment that repays the loan over its term, like a smaller mortgage.
I’ll show you the payment for your amount at today’s rates, during and after the draw period, before you decide.
HELOC, second mortgage or cash-out refinance?
If your first mortgage has a low rate, keeping it and borrowing behind it is often cheaper than replacing the whole loan. If today’s rates are near yours, or you need a large amount at a fixed rate, a cash-out refinance may cost less. I price both.
What lenders look for.
| Requirement | What’s typical |
|---|---|
| Equity | Enough that your total borrowing stays within the lender’s limit, often 80–90% of the value. |
| Credit | Many lenders start around 620–680. |
| Income | Enough to cover both payments; bank statement and DSCR options exist for self-employed owners and rentals. |
| Costs | An appraisal or valuation and some closing costs; some lenders cover these, and some charge an annual fee. |
The risks.
- Your home secures it. Missing payments can put your home at risk.
- Variable rates. A HELOC’s rate, and payment, can rise with the market.
- Payment jump. When the draw period ends, principal payments begin.
- Your line can shrink. If your home’s value falls sharply, a lender can freeze or reduce an unused line.
How we get started.
Tell me the goal
How much, for what, and your current first mortgage.
I compare
HELOC, fixed second and cash-out refinance, with the cost of each.
Valuation
An appraisal or automated valuation sets your available equity.
Close
On a primary home, there’s a three-day right to cancel before funds are available.
HELOCs and second mortgages, answered plainly.
How does a second mortgage work?
It’s a loan secured by your home behind your first mortgage. You keep your first loan and its rate, and pay both.
How much equity do I need for a second mortgage?
Enough that your first mortgage plus the new loan stays within the lender’s limit, often 80–90% of your home’s value. See also: HELOC vs home equity loan calculator.
Is a HELOC a good idea right now?
When your first mortgage rate is low and you’ll use the money for something that holds value, a HELOC lets you borrow without giving that rate up. The risk is a variable rate, so plan for it to rise.
Why is a HELOC a bad idea for some people?
If the payment would strain your budget when rates rise or the draw period ends, or the money is for everyday spending, it puts your home at risk. See also: HELOC vs home equity loan calculator.
What’s the monthly payment on a HELOC?
During an interest-only draw period, roughly the balance times the rate divided by 12; afterwards, principal is added. I’ll calculate it at current rates for your amount.
What happens when a HELOC’s draw period ends?
You can no longer draw, and the payment changes to principal plus interest over the repayment period, often 10 to 20 years, so it usually rises. Some owners refinance the balance instead.
Can I get a HELOC on a rental property?
Yes, through specialist lenders, usually with lower limits than on a primary home. See also: HELOC vs home equity loan calculator.
Is it hard to get approved for a second mortgage?
With equity, credit around 620–680 or better and income for both payments, most owners qualify. See also: Home equity loan vs HELOC.
Is a second mortgage a good idea?
It can be when your first mortgage rate is lower than today’s rates: you keep that rate and borrow only what you need. It adds a second payment and more debt on the home, so it fits best for a clear purpose such as a renovation or paying off higher-rate debt.
What is needed to qualify for a second mortgage?
Enough equity to stay within the lender’s combined loan-to-value limit, credit that meets its minimum, and income to cover both payments. Bank statement and DSCR options exist for self-employed borrowers and investors.
Is there a home equity loan with no closing costs?
Some lenders offer HELOCs and home equity loans with low or no closing costs, usually in exchange for a slightly higher rate, a minimum first draw or a fee if you close the line within the first few years. Compare the APR and those conditions, not just the headline.
What is the cheapest way to borrow $100,000?
For a homeowner, usually a loan secured by the home: a HELOC or home equity loan, or a cash-out refinance if your current mortgage rate is high, because secured loans cost less than personal loans or credit cards. Which is cheapest depends on your first-mortgage rate, how quickly you’ll repay and the closing costs. The HELOC vs home equity loan calculator compares them on your numbers.
Cash-out refinance
Refinance
Renovation
Hard-to-finance condos