Okay, so here's what happened. I was just in a Master’s of Social Work (MSW) class learning about financial decision-making and how people evaluate their options when they're under stress. It struck me how confusing the mortgage terminology can be for homeowners trying to access their equity. The terms "second mortgage" and "home equity loan" get thrown around interchangeably, but they're not exactly the same thing, though they are related.
If you've been making mortgage payments and building equity in your home, you're sitting on a potentially valuable financial resource. According to Cotality's Q2 2025 data, American homeowners have accumulated approximately $17.5 trillion in total home equity, with the average borrower holding about $307,000 in equity. That's a lot of buying power locked up in your property.
The challenge? Understanding how to access that equity and which borrowing option makes the most sense for your situation. When we acquired this process at AmeriSave, one of the first things we realized was that homeowners needed clearer explanations about their equity options, not just product sheets filled with jargon.
Think of it like this: your first mortgage is the loan you took out to buy your home. A second mortgage is any additional loan that uses your home as collateral while that first mortgage is still active. It's called "second" because if you default and the property goes into foreclosure, your primary mortgage gets paid first, and the second mortgage lender gets whatever's left.
Here's what nobody tells you: a home equity loan can actually be either a first mortgage OR a second mortgage, depending on your situation. If you own your home free and clear with no existing mortgage, then a home equity loan would technically be your primary (first) mortgage. But if you still have an active mortgage, that home equity loan becomes a second mortgage. The textbook answer is that "second mortgage" is the umbrella term, and "home equity loan" is one specific type that falls under that umbrella. But really, what matters most is understanding which product fits your needs and how the mechanics work for your specific situation.
When you're deciding between a home equity loan and a HELOC, you're essentially choosing between predictability and flexibility. Here are the key differences:
Home Equity Loans:
HELOCs:
Most lenders, including AmeriSave, will let you borrow up to 80-85% of your home's current value, minus what you still owe on your first mortgage. Here's a worked example with real numbers:
Example Calculation:
Step 1: Calculate maximum borrowing against home value
$400,000 × 0.85 = $340,000 (maximum total debt allowed)
Step 2: Subtract existing mortgage
$340,000 - $250,000 = $90,000 (maximum available to borrow)
So in this scenario, you could potentially access up to $90,000 through a second mortgage. The actual amount you qualify for will depend on your credit score, debt-to-income ratio, and other factors.
According to the Mortgage Bankers Association's 2025 Home Equity Lending Study, the average combined loan-to-value for funded HELOCs decreased to 51% in 2024, suggesting that most borrowers aren't maxing out their available equity. They're being strategic about how much they tap.
Every financial product has tradeoffs, and second mortgages are no exception. Here in Louisville, where I live, I've seen neighbors make both great decisions and regrettable ones with home equity borrowing. What makes the difference? Understanding both sides before you commit.
Lower Interest Rates Than Alternatives
This is huge. With credit card interest rates exceeding 20% and personal loan rates averaging over 12%, a second mortgage at 8% looks pretty attractive. If you're consolidating high-interest debt, the math really works in your favor. In fact, according to the MBA's 2025 study, debt consolidation usage grew to 39% of home equity borrowing volume in 2024, up from just 25% in 2022. That's nearly a 60% increase in just two years.
Flexibility in How You Use the Funds
Unlike an FHA 203(k) loan that must be used for home improvements, or a student loan that's restricted to education expenses, you can use second mortgage funds for virtually anything: renovations, medical bills, starting a business, paying for college, or even buying an investment property.
Keep Your Low First Mortgage Rate
If you refinanced or bought during the 2020-2021 ultra-low rate environment, your first mortgage rate is probably in the 2-4% range. A cash-out refinance would replace that favorable rate with today's higher rates (averaging around 6.79% for 30-year fixed mortgages as of November 2025). A second mortgage lets you keep that low rate on your primary loan.
Potentially Tax-Deductible Interest
If you use home equity loan or HELOC funds to substantially improve your home, the interest may be tax-deductible under current IRS rules. Always consult a tax professional for your specific situation, but this can provide meaningful savings for renovation projects.
Your Home Is Collateral: The Risk Is Real
This isn't just a checkbox to acknowledge. If you fall behind on payments, you can lose your home to foreclosure. When I was still in underwriting early in my career, I saw borrowers who treated home equity like "free money" and ended up in serious financial distress. The human side of this is critical: borrow responsibly based on what you can truly afford, not just what you're approved for.
Variable Rates Can Increase with HELOCs
A HELOC that starts at 7.8% might sound great, but if rates rise over the next few years, your payment could increase substantially. You need a buffer in your budget for potential rate increases. Some HELOC products do offer fixed-rate conversion options during the draw period, which can provide more stability.
Additional Monthly Payment to Manage
You're adding a second house payment to your budget. That means less flexibility in your monthly cash flow. Before committing, make sure you've accounted for this new payment in your budget, not just looked at whether you can technically afford it on paper.
Closing Costs and Fees
While second mortgages typically have lower closing costs than cash-out refinances, they're not free. Expect to pay for appraisals, title searches, origination fees, and other costs that can run into thousands of dollars. Factor these into your decision about whether the borrowing makes sense.
Phased Home Renovations
If you're tackling a major remodel in stages—maybe kitchen this year and bathrooms next year—a HELOC lets you draw funds as you need them rather than taking out a large lump sum upfront. You only pay interest on what you've actually borrowed.
Emergency Fund Backup
Some homeowners open a HELOC as a financial safety net even if they don't plan to use it immediately. It's there if unexpected expenses arise. Just be aware that having an open HELOC can affect your debt-to-income ratio if you apply for other credit.
Debt Consolidation with Ongoing Expenses
If you're consolidating credit card debt but also have other variable expenses to manage, a HELOC provides ongoing access to credit at a lower rate than credit cards.
Alternative to Cash-Out Refinance
According to mortgage industry data, cash-out refinances often come with stricter qualification requirements. If you can't qualify for a cash-out refi or if the rates aren't favorable, a HELOC can provide faster access to your equity with potentially more lenient approval criteria.
One-Time Large Expenses
College tuition, a specific renovation project, medical bills, or buying a second property. If you know exactly how much you need and when you need it, the lump sum structure works perfectly.
Predictable Monthly Budget
Fixed payments make budgeting easier. You know exactly what your payment will be for the entire life of the loan, which helps with long-term financial planning.
Protection Against Rising Rates
If you're concerned about interest rates increasing (as many experts predict could happen later in 2025), locking in a fixed rate now provides peace of mind. According to CBS News financial analysts, home equity loan rates are expected to remain in the 7.9-8.1% range through the end of 2025.
Debt Consolidation with a Clear Payoff Plan
If you're consolidating credit card debt and want a structured repayment plan that forces discipline, a home equity loan's fixed payments provide that framework.
We want the process of getting a home equity loan from AmeriSave to be easy and clear. Our online platform lets you see what you might qualify for without hurting your credit score at first. Our loan officers are experts at helping you figure out which option is best for your financial goals.
This means that you don't have to make these choices on your own. Our team can help you understand the numbers and see the whole picture, whether you're trying to decide between a home equity loan and a HELOC or a cash-out refinance.
We work hard to make things easy for our customers. Instead of just saying "this doesn't work" and moving on, we're willing to think about "How can I make this work for this person?" That way of thinking is important, especially when you're making a choice that affects your home.
If you've read this far, you're probably ready to do something about tapping your home equity. Based on my years of experience helping borrowers through this process, here's what I think: First, make sure you know exactly why you need the money and how much you really need, not just how much you could borrow.
The timing is actually pretty good right now. You can make your equity work for you because American homeowners have almost $17.5 trillion in home equity available to them. Rates are higher than they were during the pandemic, but they are still much lower than credit cards or personal loans.
Our online tools at AmeriSave make it easy to get a rate quote and find out what you might be eligible for. It's important to choose a home equity loan with fixed payments or a HELOC with flexible payments that fits your budget and your financial goals.
Are you ready to look into your options? Get in touch with AmeriSave and talk to a loan officer who can help you figure out what to do next in your situation. We want to help you make this work.
Yes, you can do it. Having an FHA or VA loan as your first mortgage doesn't mean you can't get a second mortgage. You will, however, need to meet the lender's requirements for the second mortgage, which include having enough equity in your home. The combined loan-to-value limits still apply, which means that the total amount of both loans should be between 80% and 85% of the current value of your home. Some lenders may have special rules for government-backed first mortgages, so it's a good idea to look at a few different options to find the best terms.
Most lenders want you to have at least 15-20% equity left in your home after the second mortgage. This means that if lenders usually let you borrow up to 80–85% of the value of your home, you need to have saved up more than the 15–20% minimum. In the example above, if your home is worth $400,000, you would need at least $60,000 to $80,000 in equity. The more equity you have above the minimum, the better your rates and terms are likely to be because you are less of a risk to the lender.
Most lenders want you to have a credit score of at least 620–640 to qualify, but to get the best rates, you usually need a score of 700 or higher. AmeriSave works with borrowers with all kinds of credit scores, and your score will affect your rate in part. If your score is below 620, you might want to try to raise it before you apply. You could also look into other options, like an FHA cash-out refinance, which may have less strict credit requirements.
The time it takes to get a home equity loan or a HELOC can vary, but it usually takes 2 to 4 weeks from the time you apply until the loan closes. The speed depends on how quickly you can give the lender the paperwork they need, if an appraisal is needed (some lenders use automated valuation models for smaller loans), and how busy the lender is. The MBA's 2025 study found that 47% of originations in 2024 used automated valuation models. These models can make the process much faster by getting rid of the need for a traditional appraisal.
If you use the money from a home equity loan or HELOC to buy, build, or make major improvements to your home, the interest may be tax-deductible. The Tax Cuts and Jobs Act changed this. The deduction doesn't happen automatically anymore, no matter how you use the money. If you plan to use the money for vacation, debt consolidation, or something else that doesn't involve fixing up your home, you usually can't deduct the interest. To be able to claim the deduction, married couples who file jointly must have a total mortgage debt of no more than $750,000. For married couples who file separately, the limit is $375,000. Always talk to a tax expert about your own situation.
This depends on the terms of your loan. Many home equity loans and HELOCs don't have penalties for paying off the loan early, but some do. That's why it's important to read your loan documents carefully before signing. We at AmeriSave are honest about all the fees and terms, even if there are penalties for paying off your loan early. If you want to avoid prepayment penalties, maybe because you plan to sell the house in a few years or expect to get a lot of money that will let you pay off your debt, make sure to ask about this when you apply.
When you sell your house, you'll have to use the money from the sale to pay off both your first and second mortgages. The title company that is in charge of the sale will figure out all the payoffs and make sure that both loans are paid off at closing. If your home has gone up a lot in value, you should have enough equity to pay off both loans and still make money from the sale. It's important to figure out if the sale price will cover both mortgages if you're selling in a down market where values have dropped. If not, you'd be in a short sale situation, which needs the lender's permission.
Not really. The rates are similar because a home equity loan is a type of second mortgage. The main difference is that second mortgage rates (for home equity loans or HELOCs) are usually a little higher than first mortgage rates. This is because they are in second place in the event of foreclosure, which makes them riskier for lenders. The difference between first and second mortgage rates is about 1 to 2 percentage points, based on current market data. A home equity loan might cost 7.5% to 8.5% more than a cash-out refinance at 6.5%. You are paying to keep your current first mortgage rate.
This depends on how much you can pay each month and how much interest you want to pay over the life of the loan. If you choose a 10-year term, your monthly payments will be higher, but you'll pay a lot less interest overall. A 20-year term makes the payments more manageable each month, but you'll pay a lot more in interest. To make a decision, figure out how much more you would have to pay each month and how much more interest you would have to pay overall. If you can easily afford the higher monthly payment on the 10-year loan without going over your budget, you can save a lot of money in the long run. We can show you both situations next to each other at AmeriSave so you can make an informed choice.
Many HELOC products let you lock in a fixed rate on all or part of your balance during the draw period. If you've borrowed a lot of money and are worried about rates going up, this can be very helpful. The part that was changed works like a home equity loan inside your HELOC. Not all lenders offer this option, so if you want your interest rate to stay the same, be sure to ask about fixed-rate conversion options when looking for HELOCs. Some lenders charge a fee for conversions, while others include them as a normal part of their service.
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