Is A Home Equity Loan A Second Mortgage?

Do you have bills to pay and are a home owner? Read on to discover the truth about your home and the home equity loan lending power waiting within!

There is a subject that leads to great confusion among homeowners. Those who own their owns flat-out without a payment might not know of this or concern themselves with the issue but those homeowners that have mortgages are often confused by two different but similar terms. Those terms are second mortgage and home equity loan. The confusion comes in due to the nature of each type of lending practice.

What is the Difference?

The hard truth is that a second mortgage is actually a type of home equity loan. However, in reality the usage of those terms is separated by the fact that when most lenders speak of a home equity loan they are really referring to a home equity line of credit (HELOC). The difference between the two is quite substantial. A second mortgage is a singular loan that must be repaid over a period of time that typically ranges from fifteen to thirty years with accrued interest. This is of course based off of the equity of the home as well as credit worthiness combined with the remainder of what is owed on the home’s first mortgage.

What is a HELOC?

A HELOC version of the home equity loan operates more in line with a credit card. A similar process as stated previously will occur to determine credit worthiness and the final amount will be allowed as a running tab that must be repaid with use. Typically lenders begin with seventy-five percent of the value of the home then remove the remaining amount left on the mortgage and compare that with the homeowner’s credit rating to determine the final amount available as a line of credit.

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