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HELOC vs. second mortgage: How to decide

When you’re thinking about a home equity line of credit (HELOC), it may pay to be aware of second mortgage loans as well.

Unlike a HELOC, a second mortgage gives you a fixed sum of money to be paid back over a set time.

Equal payments are usually required on your part to pay off the full loan. Borrowers who need only a set amount rather than a revolving line of credit may find a second mortgage more attractive than a HELOC.

UNITED STATES - AUGUST 26: A for sale sign advertising a row house on Constitution Avenue, NE, is pictured on Monday, August 26, 2019, in Washington D.C. (Photo By Tom Williams/CQ-Roll Call, Inc via Getty Images)
A for sale sign advertising a row house on Constitution Avenue, NE in Washington D.C. in 2019. (Photo: Tom Williams/CQ-Roll Call, Inc via Getty Images)

Compare costs

Compare the costs of the two. Do not rely just on the annual percentage rate (APR) of the two to make your decision. The APR on a HELOC is based only on the underlying interest rate. But the APR on a traditional second mortgage includes the interest rate and may include certain other finance charges.

Be aware, however, that HELOCs may include additional costs, too, even though they may be stated or presented differently.

Dive deeper: Home equity lines of credit (HELOC): Everything you need to know

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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