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A second mortgage is like getting another loan on your home in addition to your first mortgage. The lender puts a lien on the equity you've built up by making down payments, monthly payments, and hopefully the value of the property going up.
This is what makes it different from refinancing. When you refinance, you get a new mortgage to replace your old one. When you get a second mortgage, you add a new loan to the old one. Two payments each month. One goes to your first lender and the other goes to the second mortgage lender.
This is very important right now, in 2025. Why would you refinance and give up a mortgage rate of 3% to 4% from a few years ago for a rate of 6% to 7% now? You wouldn't. With a second mortgage, you can get to your equity without changing the great rate on your first mortgage.
From the lender's point of view, second mortgages are riskier. If you don't pay your mortgage and the house goes into foreclosure, the first mortgage holder gets paid before the second mortgage holder. This "second position" means less security, which means you will have to pay more interest.
This is how you should think about it. If things go wrong, the first lender is in the front row to get their money back. The second lender is way up high in the nosebleed section, hoping that there will be enough left over after the first lender takes their cut. That risk premium is why second mortgage rates are always 1–3 percentage points higher than primary mortgage rates.
Here's what things look like as of October 2025.
Bankrate's survey of major lenders on October 15, 2025, found that the average interest rate on fixed-rate home equity loans is 8.13% across the country. The range is usually between 7% and 9%, depending on how good your credit is and the terms of the loan. U.S. For example, Bank offers 7.15% APR on 10-year loans of $50,000–$99,999 with a loan-to-value ratio of 60% or less.
According to Curinos data from October 2025, the average national rate for HELOCs (Variable Rate) is 7.75%. But the range is between 6% and 18%, depending on your credit history and the lender you choose. Some promotional rates go as low as 5.99% for 12 months (FourLeaf Credit Union offers this), but then they go back up.
Let me show you how much this means in real money.
If you get a home equity loan for $50,000 at that 8.13% average rate over 10 years, You would pay about $607 a month.
Putting the same costs on a credit card with a 21% APR (the current national average) is a different story. If you never used the card again, you'd still pay $22,425 in interest over 10 years with monthly payments of $607. You'd actually pay a lot more with minimum payments.
Let me fix that, actually. The math for the credit card is worse than I first said. If you make the usual minimum payments (2–3% of the balance), it would take you more than 15 years to pay off that $50,000 and cost you more than $60,000 in interest. If you're combining credit card debt, the second mortgage will save you a lot of money.
In September 2025, the Federal Reserve began to lower rates by 25 basis points. But the rates on second mortgages haven't gone down as much as some people had hoped. There are a few things going on here:
That being said, the path looks better than it did in 2024. Since January 2025, HELOC rates have gone down by 31 basis points. The Fed will meet again on October 28 and 29, 2025, which could bring more good news.
Home equity loans let you know what to expect.
A home equity loan works the same way as your first mortgage. You get a lump sum up front and then pay it back in fixed monthly payments over a set period of time, usually 5 to 30 years.
This is best for one-time costs that you know how much they will be. Big home improvements, paying off debt, that kind of thing. People who like to know when their payments will be due tend to choose these.
According to LendingTree data, the average home equity loan offer in early 2025 was $144,330. This is a 38.6% increase from the $104,102 offer in early 2023. The rise in home values and the ability of homeowners to borrow more money explain the jump.
I see this kind of thing happen all the time at AmeriSave:
Sarah's primary mortgage is $200,000 at 3.5% interest, and her home is worth $500,000. She needs $75,000 to fix up her kitchen.
Sarah can get the money she needs for renovations without losing her low 3.5% rate on her main mortgage. That's how powerful a second mortgage is in today's low-rate world.
HELOCs are flexible, but they come with some risk.
A Home Equity Line of Credit is more like a credit card than a regular loan. Your lender gives you a maximum credit line based on the equity you have, and you can borrow against it as needed during a "draw period," which is usually 10 years.
This makes sense for ongoing costs that change. Long-term renovation projects, like paying for college semester by semester, and so on. People who are okay with changing interest rates and want flexibility usually choose HELOCs.
You can get a HELOC for $100,000. You take out $20,000 in the first year to remodel the bathroom. You only pay interest on that $20,000. You owe $15,000 two years later, and you need another $30,000 to replace the roof. You still have $85,000 left on your credit line.
Most HELOCs only require you to pay interest on what you've borrowed during the draw period. After the draw period is over, you have to pay back the money (usually in 20 years). You can't take out any more money. Now you have to pay back both the principal and the interest.
Here's the catch: HELOCs have variable rates that are linked to the Prime Rate. Your payment goes up when rates go up. After the promotional period ends, the 5.99% rate you see at first could go up to 9% or more. I've seen this happen before, and it really makes it hard for people to stick to their budgets.
You take out a HELOC loan for $50,000 at a starting interest rate of 7.75%. You would pay about $323 a month during the 10-year draw period when you only had to make interest payments.
Things change when the time to pay back the loan starts. If the rate goes up to 8.5% by then, your payment will go up to about $430 a month because you're now paying both the principal and the interest.
The most important thing is that you have enough equity in your home. Most lenders will only let you borrow 80% to 90% of your home's current value, which includes both your first and second mortgage.
Some lenders will go up to 90% or even 95% in rare cases, but you should expect stricter requirements and higher rates. To borrow up to 90% LTV from AmeriSave, you need to have a credit score of at least 760.
There are two ways that you can get equity. First, payments on the principal. Every mortgage payment includes some principal, which builds equity over time (more in later years because of amortization). Second, the value of the property goes up. Your equity goes up as the value of your home goes up.
Cotality's research shows that the average homeowner lost $4,200 in equity between the first quarter of 2024 and the first quarter of 2025 because prices stopped going up. But they still had about $302,000 in total equity. But there are big differences between regions. Homeowners in Rhode Island gained $37,000 in equity over the course of a year, while homeowners in Hawaii lost $65,900.
Your credit score affects everything.
Minimum score: 620 for most lenders
680–700+ is the best range for competitive rates.
Best rates: 730–760+
Your credit score has a big effect on your interest rate. A score of 680 and 760 could mean a full percentage point in rate, which could add up to thousands of dollars over the life of a loan.
Here's an example of a rate tier that I see all the time:
A $75,000 loan over 15 years with a top-to-bottom spread of 7.5% to 9.5% means that you will pay almost $16,000 more in interest. That is real money.
You can't ignore your debt-to-income ratio.
Lenders want your total monthly debt payments, which include the new second mortgage, to be less than 43% of your gross monthly income. A lot of people would rather have 36% or less.
Monthly gross income: $8,000
Current debts each month:
$600 is the proposed payment for the second mortgage.
New DTI: ($2,700 + $600) ÷ $8,000 = 41.25%
You probably qualify, but you're getting close to the limit. Paying off other debts before applying could help you get approved and lower your interest rate.
People who work for themselves and borrow money are looked at more closely. Most of the time, you'll need two years of business tax returns and sometimes an accountant will need to make a profit-and-loss statement.
There are different reasons to tap into equity. Let's look at some situations where taking out a second mortgage might be a good idea.
Remodeling Magazine's 2025 Cost vs. Value Report says that some renovations give you a lot of bang for your buck:
If you borrow $50,000 at 8% interest and the improvements make your home worth $60,000 more and make it easier to live in, that math works. You're improving your quality of life and building equity.
This is where second mortgages really stand out. Bankrate says that the average interest rate on credit cards right now is 21%. If you have $40,000 in credit card debt at that rate, your minimum payments might be $1,200 a month, most of which will go toward interest.
This is how they compare.
At 21%, $40,000 means at least $1,200 a month.
Time to pay off: over 300 months (25 years)
About $120,000 in total interest
Example of a home equity loan:
$40,000 at 8.13% = $482 a month
Time to pay off: 120 months (10 years)
Total interest: about $17,840
Savings: You save more than $100,000 in interest and get out of debt 15 years sooner.
But I've seen this happen many times before, so here's my warning. You can only do this if you stop spending money in the way that got you into credit card debt in the first place. If you consolidate and then use your credit cards again, you've made your problem twice as bad and put your home at risk.
You can use your equity for medical bills, important home repairs like a broken HVAC or roof, or real emergencies. Especially when the other option is high-interest debt or retirement savings that you can't easily replace.
Last year, I worked with a borrower who needed $35,000 for medical bills after her insurance ran out. An 8% second mortgage was a million times better than the hospital's payment plan at 15% or medical credit cards at 20% or more. Life doesn't always give you the best options; sometimes it just gives you the least bad ones.
If you borrow money against your home to go on vacation, you'll still be paying for that trip 10 to 15 years later. With interest, that $8,000 cruise costs more than $12,000. You've also lowered your equity cushion for something that won't last.
When you use your home's equity to buy a car, boat, or RV, you're putting your money into something that will lose value over time. As soon as you drive off the lot, the value of your car drops by 20–30%. If you need to borrow money to buy a car, use an auto loan made for that purpose.
It's risky enough to start a business without putting your home on the line. I am in favor of entrepreneurship. I really do. But if the business fails and you've borrowed money against your home, you've lost more than just your investment. You no longer have a safe place to live. That's a risk I can't tell you to take.
In some situations, cash-out refinancing makes sense.
A cash-out refinance takes your current mortgage and gives you a bigger loan, which you can use to pay off your old one.
When to stay away: If your rate is much lower than current market rates. It costs a lot to trade a 3.5% mortgage for a 7% mortgage to get equity. The math doesn't often work out for you.
Here are the real numbers.
With a second mortgage, you can save $369 a month, $4,428 each year, and around $66,420 after 15 years.
That's why second mortgages are a great idea for people whose existing rates are low in today's market.
Personal loans are good for small needs.
Unsecured personal loans don't need collateral, which makes them less risky for you but more expensive for the lender.
The average loan amount is between $1,000 and $50,000, with interest rates ranging from 10% to 28% (12.5% is the average). The loan must be paid back in 2 to 7 years.
There is a real and serious risk of foreclosure.
It's very important to stress this. Your house is collateral. If you don't pay your second mortgage, the lender can foreclose even if you're up to date on your first mortgage.
When a house goes into foreclosure, the money from the sale goes to pay off the first mortgage first. If you don't have enough money to pay off both loans, you are still responsible for the difference on the second mortgage. You lose your house and still owe money. I've seen this happen, and it's horrible.
If the value of your home goes down a lot, you might owe more than it's worth. According to CoreLogic data from 2012, about 20% of people with mortgages were underwater. Nevada had the highest rate at 61%, followed by Arizona at 48% and Florida at 44%.
According to Cotality, only about 2.1% of homeowners (1.2 million) are in negative equity right now. But markets can change. The total amount of negative equity as of the first quarter of 2025 was $350 billion, which is an 8% increase from the previous year.
If you're underwater and having money problems, you don't have many choices. You can't sell unless you bring cash to the closing. It is no longer possible to refinance. You're stuck until the market comes back or you find a way to pay off the principal.
Having to pay twice puts a strain on budgets.
Two mortgage payments put more stress on budgets than people think. Changes in life, like losing your job, getting sick, or getting divorced, can make it hard to keep up with both payments.
Before you get a second mortgage, I suggest you save up enough money to cover both of your mortgage payments for three to six months. If you can't comfortably make both payments and keep saving, you should really think about it again.
The Prime Rate, which changes based on decisions made by the Federal Reserve, affects HELOC rates. If the Fed changes its mind about cutting rates, your 7.75% rate today could go up to 9.75% next year.
It's important to know the history of this. The Prime Rate went up from 4% to 8.25% between 2004 and 2006. If you had a $75,000 HELOC, your monthly interest-only payments would have gone up from $250 to $516. That's a 106% rise in the amount you owe.
This risk is still very real in 2025 because the economy is still not stable. A fixed-rate home equity loan is safer if your budget can't handle a 2% to 3% rate increase.
The ability to borrow against home equity and the trends in this area vary greatly from place to place.
From Q1 2024 to Q1 2025, the states with the biggest increases in home equity are:
Even though other markets cooled, prices kept going up in these Northeastern states.
Some southern states, especially Texas and Florida, are having trouble because there are too many homes for sale in some cities, property insurance rates are going up, property taxes are going up, and people are worried about natural disasters.
Where you live has a big effect on how much you can borrow and whether it's a good idea to use your equity. Markets that are stable and have strong appreciation are less risky than those that are volatile or facing economic problems.
Second mortgages can be very useful for your finances if you use them wisely, but they are not free money. You're using your most valuable asset to get cash, and if you don't pay it back, the consequences are very bad.
Second mortgages make more sense than they have in years because American homeowners have almost record-high equity levels but don't want to give up their low first mortgage rates. It often makes more sense to keep that 3–4% first mortgage and get an 8% second mortgage instead of refinancing everything at 6–7%.
That being said, you should never make that choice lightly. Think about these things:
Is there a clear, specific way I plan to use this money that makes the risk worth it? If my income goes down, can I still comfortably make both mortgage payments? Am I using this money in a way that adds value over time instead of just spending it? Have I looked at all of my options, such as personal loans, refinancing, and just waiting and saving? Do I fully understand the terms, like whether my rate is fixed or variable?
A second mortgage might be the best way for you to go if you can confidently answer these questions and the numbers work in your favor. But if you're not sure or you're thinking about using it to pay for extra expenses or make up for shortfalls in your monthly budget, stop. That's a sign that using your home's equity isn't the best choice.
Your home is more than just a piece of property. It's the safety and stability of your family. Take the time to think carefully about decisions about using it.
Second mortgages can help you pay off high-interest debt, make improvements that will increase the value of your home, or cover real major costs if you use them wisely. If you don't use them right, they could put that security at risk.
If you're ready to look into your equity access options in a responsible way, the first thing you should do is get quotes from several lenders and compare the real costs of each option. Taking a few hours to do a lot of comparison shopping could save you tens of thousands of dollars over the life of your loan.
Every day at AmeriSave, we help homeowners make these choices, whether it's through home equity loans or cash-out refinancing. The best choice for you will depend on your situation, your current mortgage rate, and your long-term financial goals.
Most lenders want you to keep at least 20% equity in your home after you take out a second mortgage. This means that you can usually borrow up to 80% of your home's value minus the amount you still owe on your mortgage. Some lenders will let you borrow up to 85–90% of the value of your home, but they will have stricter credit requirements and higher rates. The appraised value of your home right now, not what you paid for it, determines how much you can borrow. You might have more equity in your home than you think if its value has gone up a lot. On the other hand, if property values in your area have gone down, you might have less equity than you thought, even if you've been making payments on time.
Getting a second mortgage with bad credit is hard, but not impossible. Most lenders want a credit score of at least 620, but some may accept a lower score if you have a high income, a lot of equity, or a low debt-to-income ratio. If your score is below 680, you should expect to pay a lot more in interest, maybe 2 to 4 percentage points more than someone with great credit. If your score is less than 620, you might want to look into FHA or VA cash-out refinancing as options. Sometimes, the credit requirements for these government-backed programs are less strict. You might also want to work on your credit score for 6 to 12 months before applying. Even a 40-50 point increase can lower your interest rate and save you thousands over the life of the loan.
When you take out a second mortgage, you get a new loan on top of your current one. This means you have to make two separate monthly payments to two different lenders. Refinancing gives you a new loan that replaces your current mortgage. You only have to make one payment each month. In today's market, where many homeowners have mortgage rates below 4% to 5%, second mortgages make more sense because they let you keep those good terms. If you do a cash-out refinance, you'll give up your low rate for today's higher rates just to get to your equity. The break-even point is usually when your current mortgage rate is equal to or higher than the current market rate. Then refinancing might give you better overall terms because you won't lose your rate advantage. Second mortgages usually have lower closing costs, but they also have higher interest rates than primary mortgages because the lender is taking on more risk.
The Tax Cuts and Jobs Act of 2017 says that you can only deduct the interest on a second mortgage if you use the money to buy, build, or make major improvements to the home that secures the loan. If you use the money from a second mortgage to pay off debt, go to school, start a business, or do something else, you can't deduct the interest from your taxes. You have to itemize your deductions instead of taking the standard deduction to get the benefit of deducting interest. In 2025, the standard deduction will be higher ($14,600 for single filers and $29,200 for married couples). This means that fewer people will be able to take advantage of the mortgage interest deduction. The deduction is also limited by the total amount of mortgage debt. For loans taken out after December 15, 2017, you can only deduct interest on up to $750,000 of combined mortgage debt ($375,000 if you are married and filing separately). Because tax laws can be complicated and change from time to time, you should always talk to a tax professional about your situation.
It usually takes 30 to 45 days from when you apply to when you close, but some lenders say they can do it in as little as 2 to 3 weeks for simple applications. The steps in the process are submitting an application, reviewing the documents, getting a home appraisal if necessary, underwriting the loan, and closing. Sometimes, HELOCs close faster than fixed-rate home equity loans because they don't need as much underwriting. There are a number of things that can speed up or slow down the process, such as how quickly you send in the paperwork that was asked for, whether an appraisal is needed and how quickly it can be scheduled, how complicated your finances are, and how busy the lender is right now. If you get all the paperwork you need before you apply, like two years' worth of tax returns, recent pay stubs, W-2s, bank statements, homeowners insurance information, and your current mortgage statement, you can speed up the process. Having these ready helps underwriters get your application through faster because they don't have to wait for more paperwork.
Most second mortgages these days don't have prepayment penalties, but you need to check this before you sign the loan papers. Some lenders charge fees for closing early or require the loan to stay open for a certain amount of time, usually 2 to 3 years. Read your loan documents carefully before signing because these terms can be very different depending on the lender and the type of loan. If you close a HELOC line of credit within the first few years, even if you've paid off the balance, you may have to pay an early closure fee. This keeps the lender from losing money on the costs of setting up the credit line. If you think you might be able to pay off the loan early by selling your house, refinancing, or getting a windfall, make sure to ask about prepayment terms when you apply. Put the answer in writing. When trying to pay off a second mortgage early, some borrowers have been shocked to find out that they owe thousands of dollars in extra fees. Knowing these terms ahead of time can help you avoid expensive surprises and find a lender with terms that work for you.
When you sell your home, the money from the sale must pay off both your first and second mortgages. The title company that is in charge of the sale will make sure that the first mortgage is paid off first, then the second mortgage, and then you will get the rest of the equity. Because second lien holders are taking on more risk, second mortgages have higher interest rates. You need to bring cash to closing to make up the difference if the sale proceeds don't cover both loans. This doesn't happen very often in today's market, but it can happen if you're underwater or selling soon after buying. You are still legally responsible for both loans until they are paid off. In strong real estate markets where property values have gone up, most homeowners have enough equity to pay off both mortgages and still have money left over. But if you're thinking about selling soon after getting a second mortgage, keep in mind that closing costs usually range from 6% to 10% of the sale price. These costs can cut down on the amount of money you make.
You can get a second mortgage on an investment property, but the requirements will be stricter than for a primary residence. Because investment properties are more likely to go into default, lenders usually want higher credit scores (usually 700 or higher), lower loan-to-value ratios (usually 70–75% instead of 80–90% for primary homes), and higher interest rates. You'll also need to show that you make enough money to pay for all of the property's costs, such as both mortgages, property taxes, insurance, maintenance costs, and vacancy reserves, as well as your own debts. Lenders want to know that you can make the payments even if the property is empty. Some lenders will include rental income from the property in their debt-to-income calculations, but many will only count 70–75% of the rental income because they use a vacancy factor of 25–30%. When you take out a loan for an investment property, you usually have to show more paperwork, like rental agreements, property tax returns, and proof of rental income history.
Which one is better for you depends on your needs and how much risk you are willing to take. Home equity loans are best for one-time costs that you know how much they will cost, like remodeling your whole kitchen, paying off a lot of debt, or paying for college all at once. They have fixed rates and monthly payments that you can count on, which makes it easier to plan your budget and keeps you safe from rising interest rates. HELOCs are good for ongoing costs that change, like paying for college tuition semester by semester, covering business cash flow needs, or doing renovations in stages. You can borrow only what you need, when you need it, and you only pay interest on the amount you actually borrow. The trade-off is that the rates can change, and they can go up a lot if the Federal Reserve raises interest rates or the Prime Rate goes up. Home equity loans are usually the best choice for conservative borrowers who want to know how much they will have to pay each month and don't like surprises when it comes to money. HELOCs can be cheaper for people who are comfortable with variable-rate products and value flexibility over predictability because you don't have to pay interest on credit that you don't use.
At first, your credit score may go down by 5 to 15 points because of the hard credit inquiry that happens when you apply and the extra debt that shows up on your credit report. It's normal and expected for this short dip to happen. As long as you keep making your payments on time for the next few months, your score should go back up and maybe even go up even more as you show that you have a good payment history with the new tradeline. The most important thing that affects your FICO score is your payment history, which makes up 35% of it. If you miss or are late on a payment on your second mortgage, it could drop your score by more than 100 points and stay on your credit report for seven years. How a second mortgage affects your credit utilization ratio depends on how you use the money. If you pay off your credit card debt and lower your revolving balances, your utilization ratio goes up a lot, which can really help your credit score. Payment history is the only thing that affects your FICO score more than credit utilization. If you combine your credit cards but then run them back up, though, you've made things worse by adding debt instead of replacing it. This will hurt your credit score.
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