A home equity line of credit (HELOC) is a second mortgage, but only if you already have a mortgage on your home.
That's because the term “second mortgage” describes the loan's position behind another mortgage secured by the same property. Your original mortgage is typically the first lien, while the HELOC becomes a second, or junior, lien.
If your home is paid off and you don't have any other mortgage on it, a new HELOC can be a first-lien mortgage.
HELOC Second Mortgage Basics
| Feature |
HELOC |
| Secured by your home? |
Yes |
| Second mortgage? |
Generally, if an existing first mortgage remains on the home |
| Type of credit |
Revolving line of credit |
| How you receive money |
Draw as needed up to the available credit limit during the draw period |
| Interest rate |
Usually variable, although some HELOCs offer fixed-rate conversion features |
| Property at risk if you don't repay? |
Yes |
The CFPB defines a second mortgage or junior lien as a loan secured by your home while another loan is already secured by the property. It specifically identifies HELOCs and home equity loans as common examples.
When Is a HELOC a Second Mortgage?
If you took out a mortgage to buy your home and later open a HELOC against the equity you've built, the HELOC is generally a second mortgage.
For example, suppose your home is worth $500,000 and you still owe $300,000 on your original mortgage. You then open a $75,000 HELOC.
- Your original $300,000 mortgage remains the first mortgage.
- The HELOC is secured by the same home.
- The HELOC generally sits in second-lien position behind the original mortgage.
The two accounts remain separate. Opening a HELOC does not normally replace your original mortgage. You continue making the required payment on your first mortgage while also making any required payments on the HELOC.
When Is a HELOC Not a Second Mortgage?
A HELOC isn't automatically a second mortgage just because it's a home equity product.
If you own your home free and clear, there is no first mortgage ahead of a new HELOC. In that situation, the HELOC can be secured by the property in first-lien position.
The CFPB describes home equity loans and HELOCs as second mortgages when you already have a mortgage. The existing mortgage is what creates the first-versus-second distinction.
Lien position can affect loan pricing, refinancing and what happens if the property has to be sold to satisfy the debt.
What Does “Second Mortgage” Actually Mean?
The “second” in second mortgage refers to lien priority, not the order in which you make your monthly payments and not whether the mortgage is on a second home.
If a home securing both loans were sold after a serious default, the first-lien lender generally has priority over a second-lien lender. The CFPB notes that a second-mortgage lender is paid after the first mortgage lender.
That creates more risk for the second-lien lender. If the home is worth less than the total debt secured by it, there may not be enough money to repay both loans completely.
That additional risk is one reason second mortgages can carry higher interest rates than first mortgages.
Is a HELOC the Same as a Home Equity Loan?
No. A HELOC and a home equity loan can both be second mortgages, but their borrowing structures are different.
| Feature |
HELOC |
Home Equity Loan |
| Borrowing structure |
Revolving credit line |
Lump-sum loan |
| Access to funds |
Borrow repeatedly during the draw period, subject to available credit and loan terms |
Receive the loan proceeds upfront |
| Rate structure |
Usually variable |
Often fixed |
| Can be a second mortgage? |
Yes |
Yes |
The distinction is primarily about how you borrow and repay the money. A HELOC vs. home equity loan comparison can help if you're deciding between revolving access and a fixed lump sum.
How Does a Second-Mortgage HELOC Work?
A HELOC generally has two phases: a draw period and a repayment period.
During the Draw Period
You can borrow against the available line of credit, repay money and potentially borrow again, subject to the account terms.
Required payments during this phase depend on your HELOC agreement. Some plans permit interest-only minimum payments during the draw period.
During the Repayment Period
Once the draw period ends, additional borrowing generally stops and you repay the remaining balance according to the loan terms.
The required payment can increase when repayment begins because you may start paying principal as well as interest. HELOCs also usually have variable rates, so rate changes can alter the payment. Some products allow part of the balance to be converted to a fixed rate. A fixed-rate vs. variable-rate HELOC comparison explains how those structures differ.
Why Can HELOC Rates Be Higher Than First-Mortgage Rates?
Lien position affects the lender's risk. A second-lien lender stands behind the first mortgage lender if the property has to be sold to repay secured debts.
Because of that junior position, second mortgages can be priced differently from first mortgages. HELOC pricing is also usually variable and may be based on an index plus a lender margin.
Your credit profile, available equity, loan size and other factors can also affect the offer you receive. HELOC rate mechanics usually include variable rates, indexes and margins interact.
Does a HELOC Affect Refinancing Your First Mortgage?
It can.
If your HELOC sits behind your first mortgage and you later refinance the first mortgage, the lien positions have to be addressed as part of the transaction.
You may need approval from the HELOC lender to refinance your first mortgage. If the HELOC lender will not agree to the required arrangement, paying off the HELOC may be necessary to complete the refinance.
You may also choose to refinance the HELOC itself, depending on your balance, available equity, credit and the terms available at the time.
What Happens to a HELOC When You Sell Your Home?
A HELOC is secured by the property, so selling the home generally means the HELOC balance has to be addressed as part of the sale.
The proceeds from the sale typically go toward satisfying secured mortgage debt before you receive the remaining equity. If you have a first mortgage and a second-lien HELOC, both balances can therefore reduce the amount of cash you receive from the sale.
The CFPB also notes that repayment of home equity debt is often required when the home is sold.
HELOC vs. Cash-Out Refinance
A HELOC and cash-out refinance can both give you access to home equity, but they affect your existing mortgage differently.
A HELOC generally leaves your first mortgage intact and adds another secured credit line. A cash-out refinance replaces the existing mortgage with a new, larger mortgage and provides part of the difference in cash.
That distinction can be significant if your current first mortgage has terms you want to keep. A HELOC vs. cash-out refinance comparison can help you compare the two structures.
Risks of Using a HELOC as a Second Mortgage
A HELOC gives you access to equity without selling your home, but the debt is secured by the property.
If you cannot make the required payments, foreclosure is possible. The CFPB warns that falling behind on a HELOC can put your home at risk.
You also need to account for variable-rate risk, potential payment increases when the draw period ends and the additional debt you're carrying alongside your first mortgage.
Before borrowing, compare the amount you need with the available equity in your home and consider how the HELOC payment would fit alongside your existing mortgage and other expenses.
The Bottom Line
A HELOC is usually a second mortgage when you already have a first mortgage secured by your home. Your original mortgage typically remains in first-lien position, while the HELOC becomes a second, or junior, lien.
A HELOC can also be a first-lien loan if there is no other mortgage ahead of it. The defining issue is lien position, not the fact that the loan is a HELOC.
Because a HELOC is secured by your home, its lien position can affect pricing, refinancing and what happens when the home is sold. It also means your home is at risk if you cannot repay the debt.
Frequently Asked Questions
Is Every HELOC a Second Mortgage?
No. A HELOC is generally a second mortgage when an existing mortgage remains on the home. If the property has no other mortgage secured by it, the HELOC can occupy the first-lien position.
Why Is a HELOC Called a Second Mortgage?
It is called a second mortgage when it sits behind an existing first mortgage in lien priority. If the property has to be sold to satisfy the secured debts, the first-lien lender generally has priority over the second-lien lender.
Does a HELOC Replace Your Current Mortgage?
No, not under the typical second-mortgage structure. Your first mortgage remains in place and the HELOC is a separate account secured by the same home. You are responsible for the required payments on both.
Is a Home Equity Loan Also a Second Mortgage?
Yes, when you already have a first mortgage. Home equity loans and HELOCs are both common forms of second mortgages. A home equity loan typically gives you a lump sum, while a HELOC provides a revolving credit line.
Can You Have a HELOC Without a First Mortgage?
Yes. A homeowner who owns a property free and clear can take out a HELOC. With no existing mortgage ahead of it, the HELOC can be in first-lien position.
Does “Second Mortgage” Mean a Mortgage on a Second Home?
No. A second mortgage refers to lien position on a property. It has nothing to do with whether the property is your first home, second home or vacation home.
Can a HELOC Make It Harder to Refinance?
It can. The CFPB says a HELOC lender may need to approve the lien arrangement when you refinance your first mortgage. In some situations, the HELOC may need to be paid off before the refinance can proceed.
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