It’s a common question, what’s the difference between a HELOC vs a second mortgage? The short answer is, not a whole lot aside from verbiage.
A second mortgage is another loan taken against your property that’s already mortgaged. You’ll be borrowing again, not to buy a home this time, but against your home by using the equity you’ve built up by making your mortgage payments and/or that’s accumulated passively due to a potential increase in property value.
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Mortgage vs Second Mortgage
Before we go further into the differences between a HELOC vs a second mortgage, let’s examine how a first mortgage is similar and potentially unlike a second. Your first mortgage allowed you to borrow a large amount of money, in a single lump sum, to buy a home. In doing so, the lender will have placed a lien on your home which would allow them to seize the property should you not make your mortgage payments and/or default on that first mortgage.
A second mortgage is akin to the first in that once again a lien will be placed on your home but this time, only on the portion of your home that you’ve paid off and will borrow against — the equity you’ve built up that you’ll use as collateral for the second mortgage loan
With a second mortgage, you’re not borrowing to buy your home but instead, borrowing against the equity you have built up in your home. As with your original mortgage, the home will serve as collateral for the loan. It’s likely that multiple lenders will have liens against your home, one for the balance still owed on the first mortgage and another for the amount of home equity you have borrowed.
Why Consider A Second Mortgage?
A second mortgage provides you, the homeowner, with an influx of cash, for whatever purpose(s) that cash is needed. Maybe you want to consolidate credit card debt, pay off student loans or find the best way to finance home improvements. With a second mortgage, you may be able to access funds by borrowing against your home and using the equity you have accumulated in it.
The Difference Between a HELOC vs Second Mortgage
Now that you know how a second mortgage will differ from your first, and what you could do with the funds from it, let’s now take a look at the key differences when it comes to a HELOC vs a second mortgage.
The difference, essentially, is the language because your second mortgage will be processed as either a home equity loan or line of credit (HELOC). These are the two loan vehicles that can fund a second mortgage, and within the two there are differences.
Whereas a home equity loan will likely act similarly to your first mortgage, with a fixed monthly loan payment over a fixed number of years, taking a HELOC as your second mortgage offers the same kind of access to your home’s equity but with the added flexibility of making repayments only on the amount withdrawn from the line of credit. A HELOC also allows for continuous borrowing, as the amount accessible through the line of credit increases with each principal payment amount made.
The differences between a HELOC vs a second mortgage may have been confusing but now you understand how the former can fund the latter. Find out more about how a HELOC works and how Prosper may help you access your home equity as a second mortgage.
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT.
To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.
Eligibility for a home equity loan or HELOC up to $500,000 depends on the information provided in the home equity application. Loans above $250,000 require an in-home appraisal and title insurance. For HELOCs borrowers must take an initial draw of $50,000 at closing. Subsequent HELOC draws are prohibited during the first 90 days following closing. After the first 90 days following closing, subsequent HELOC draws must be $1,000 or more (not applicable in Texas).
The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Spring EQ borrowers get their cash on average in 26 days. The time period calculation to get cash is based on the first 6 months of 2022 loan fundings, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications.
Spring EQ cannot use a borrower’s home equity funds to pay (in part or in full) Spring EQ non-homestead debt at account opening. For HELOCs in Texas, the minimum draw amount is $4,000. To access HELOC funds, borrower must request convenience checks.
Interest rates may be adjusted based on factors related to the applicant’s credit profile, income and debt ratios, the presence of existing liens against and the location of the subject property, the occupancy status of the subject property, as well as the initial draw amount taken at the time of closing. Speak to a Prosper Agent for details.
Qualified applicants may borrow up to 95% of their primary home’s value (not applicable in Texas) and up to 90% of the value of a second home. Home equity loan applicants may borrow up to 85% of the value of an investment property (not applicable for HELOCs).
All home equity products are underwritten and issued by Spring EQ, LLC, an Equal Housing Lender. NMLS #1464945.
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