HELOC vs Closed-End Second Mortgage: Understanding the Difference
Homeowners across Florida and beyond are using their home’s equity to fund renovations, pay off debt, or cover major expenses. Two of the most common options are a Home Equity Line of Credit (HELOC) and a Closed-End Second Mortgage.
While both loans let you borrow against your home’s equity, they work very differently - from how you access the funds to how the payments are structured.
What is a HELOC?
A HELOC functions much like a credit card secured by your home. It gives you a revolving line of credit that you can draw from as needed, up to a certain limit, during what’s called the draw period (typically 5-10 years).
Flexible borrowing: You can withdraw money as needed - for home repairs, tuition, or debt consolidation - and only pay interest on the amount you actually use.
Variable interest rate: Most HELOCs have adjustable rates that can rise or fall with the market.
Revolving Credit: Once you repay what you borrowed, you can use those funds again during the draw period.
When the draw period ends, the loan typically enters a repayment phase, where you can no longer withdraw funds and must pay down both principal and interest over time.
What is a Closed-End Second Mortgage?
A Closed - End Second Mortgage is a fixed-term loan that provides a one-time lump sum of money.
Fixed loan amount: You receive all the funds up front at closing.
Fixed interest rate: Your rate and payment remain the same for the life of the loan - usually 10,15, or 20 years.
Predictable payments: Because the loan doesn’t fluctuate like a line of credit, your monthly payments stay consistent.
Final Thoughts
Both HELOCs and Closed - End Second Mortgages are powerful tools for tapping into your home’s equity - but they serve different purposes. If you are unsure which option fits your needs, working with an experienced mortgage consultant can help you compare rates, terms, and long-term costs before you commit.
