SHOULD YOU USE A HELOC, REFINANCE, OR SECOND MORTGAGE?
- johnathanmcquoid
- Jan 17
- 2 min read
If you want to access equity from your home, you usually have three main options:
✔️ HELOC (Home Equity Line of Credit)
✔️ Refinance
✔️ Second Mortgage
They all tap into equity — but they work very differently.
Here are 7 key questions to help you decide which option fits your needs 👇
1️⃣ How will I receive the money?
HELOC:
Withdraw funds as needed, whenever you choose.
Refinance:
You receive the full amount as a lump sum.
Second/Third Mortgage:
Funds are released as a lump sum.
2️⃣ How do the interest rates generally compare?
(Rates always change — here are general structures only.)
HELOC:
Variable rate tied to Prime + a small premium.
Refinance:
Best available fixed or variable rate based on your profile.
Second/Third Mortgage:
Higher rates + lender and broker fees depending on risk.
3️⃣ How is interest calculated?
HELOC:
Interest applies only to the portion you actually withdraw.
Refinance:
Interest applies to the entire refinanced mortgage amount.
Second/Third Mortgage:
Interest applies to the full loan amount.
4️⃣ What will the monthly payments look like?
HELOC:
Typically interest-only. Some lenders charge a small minimum monthly fee even if the balance is $0.
Refinance:
Principal + interest payments on the new mortgage amount.
Second/Third Mortgage:
Interest-only or principal + interest depending on the lender.
5️⃣ How much equity do I need?
HELOC:
Minimum 20% equity required.
Refinance:
Minimum 20% equity required.
Second/Third Mortgage:
Some lenders allow 5–10% remaining equity (case-by-case).
6️⃣ How much equity can I access?
HELOC:
Up to 80% combined loan-to-value, with the HELOC portion capped at 65%.
Refinance:
Up to 80% of your home’s value.
Second/Third Mortgage:
Depending on lender, up to 85–90% combined loan-to-value.
7️⃣ Are there fees involved?
HELOC:
May involve appraisal and legal fees depending on lender.
Refinance:
May involve:
• prepayment penalties
• appraisal
• legal fees
Second/Third Mortgage:
Often includes:
• appraisal fees
• legal fees
• lender fees
• broker fees
💡 Important Note
Refinances still must pass the federal stress test, and refinanced mortgages cannot be insured — which affects available rates and lender options.
💬 Final Thought
The right option depends on:
✔️ your income
✔️ your credit
✔️ how much equity you have
✔️ how fast you need the funds
✔️ what you’re using the money for
If you’re unsure which financing path works best, message The Frontline Mortgage Group. We’ll compare each option for your situation and guide you toward the most cost-effective solution. 💬