Last updated: October 5, 2026 · All rates are examples for illustration, not current offers.
When you need to borrow against your home, you can either add a second loan on top of your existing mortgage or replace the mortgage entirely with a new, larger one. The right answer depends on your current rate, how much you need and how long you will take to repay it.
Your options
- Home equity loan: a fixed-rate second mortgage paid out as a lump sum and repaid over a set term, such as 10 to 20 years.
- HELOC: a variable-rate line of credit you draw on as needed. See HELOC vs. cash-out refinance.
- Cash-out refinance: a new first mortgage for more than you owe, with the difference paid to you. See cash-out refinance explained.
Example: borrowing $50,000 over 10 years
Your current mortgage balance is $269,091 at 3.5% with 25 years left and a payment of $1,347.13. You need $50,000.
| Keep mortgage + home equity loan | Cash-out refinance | |
|---|---|---|
| Loan terms | $50,000 at 8.25% for 15 years | $319,091 at 6.75% for 30 years |
| Total monthly payment | $1,832.20 ($1,347.13 + $485.07) | $2,069.62 |
| Interest paid over the next 10 years | $112,997 | $201,451 |
| Total debt left after 10 years | $212,224 | $272,188 |
Even though the home equity loan has a higher rate than the cash-out refinance, it is much cheaper overall: about $237 less per month, about $88,454 less interest over 10 years, and about $59,964 less debt at the end of that period. The reason is simple: the cash-out refinance applies 6.75% to the whole balance, including the $269,091 that was borrowing at just 3.5%.
When refinancing wins
- Your current rate is higher than, or close to, today’s refinance rates.
- You want to restructure the whole loan anyway, for example moving from an ARM to a fixed rate. See how to refinance your mortgage.
- You need a large amount and value having a single payment.
When a second mortgage wins
- Your first mortgage has a low rate you want to keep.
- You need a moderate amount relative to your total balance.
- You want lower closing costs and a faster payoff for the new money.
Other uses of second mortgages
Some buyers use a second mortgage at purchase, called a piggyback loan (for example 80/10/10: an 80% first mortgage, a 10% second and 10% down), to avoid PMI or to keep the first mortgage under the conforming loan limit and avoid a jumbo loan. Compare the second loan’s rate and costs with PMI before choosing this route.
Things to watch
- Your home secures both loans; missed payments put it at risk.
- Lenders usually cap combined borrowing at about 80% to 90% of your home’s value.
- Compare closing costs, and ask about prepayment penalties on the second loan.
Check payments for any loan amount and term in our mortgage calculator.
Frequently asked questions
What is a second mortgage?
A second mortgage is a loan secured by your home that sits behind your first mortgage. The two main types are home equity loans, which are fixed-rate lump sums, and HELOCs, which are revolving lines of credit.
Is a home equity loan better than refinancing?
If your current mortgage has a low rate, a home equity loan is usually cheaper because only the new borrowing carries today’s higher rate. If current rates are lower than your existing rate, refinancing may be better.
Do home equity loans have closing costs?
Yes, but they are often lower than a full refinance. Some lenders charge origination, appraisal and title fees; others waive some fees. Compare the total cost from several lenders.
What happens to a second mortgage if I sell my home?
Both the first and second mortgages are paid off from the sale proceeds at closing, in order of priority.
Sources: CFPB: Buying a House; CFPB: What is a HELOC? Example calculations by ToolStackIA.
This article is for educational purposes only and is not financial advice. Loan programs, rates and rules change; confirm details with your lender or a HUD-approved housing counselor.