As I mentioned previously, second mortgage and home equity lines of credit (HELOCs) have become increasingly popular in the last year or so, as people who locked in rates at the bottom of the market 2-3 years ago need cash out but don't want to lose their low rates. This is an excellent article on how to choose between a second mortgage and a HELOC. Generally speaking, second mortgages have fixed rates and you have a set payment, paying down the balance over a period of years. A HELOC acts like a credit card - you have a preset limit, you pay interest on the amount you borrow, and you can borrow money again once you'd paid it back.

A Second Mortgage Vs. A Home Equity Loan
by: Jay Moncliff

If you own your home and need a loan for whatever reason you have probably considered a second mortgage or a home equity loan to help you pay your bills, buy a new car, or pay for some other investment. However, you probably don’t know whether a second mortgage is better or worse than a home equity loan for your particular situation. However, don’t despair because there are some tips that will help you decide whether a second mortgage or home equity loan is for you.

Second Mortgage Tip #1 One Time Expenses

A second mortgage is the preferred option if you have a one time big expense you need to cover. Examples of this include remodeling your kitchen, paying for a wedding, or buying a new car. In these instances a second mortgage will probably work best for you; however this will depend on the equity in your home and your credit score.

Second Mortgage Tip #2 Recurring Expenses

If you are going to have recurring expenses then you might not want a second mortgage because a home equity loan will work out better for you. The second mortgage is best for large amounts of money at once while recurring expenses like tuition are better paid for with a home equity line of credit.

Second Mortgage Tip #3 Repayment

You will also need to consider your ability to repay and which option will suit you best. A second mortgage can be financed similarly to your first mortgage, while the home equity loan can be paid back more like a credit card. Consider your financial position and ability to make monthly payments before applying for either a second mortgage or a home equity loan.

If you still don’t know whether a second mortgage or home equity line of credit is for you, then talk with your lender and see what is recommended for your equity, credit, and ability to repay the loan.