A second mortgage, a refinance, and a HELOC are the three main ways to access equity built up in your home, and they work quite differently. A second mortgage is an additional loan registered behind your existing first mortgage, typically at a higher rate. A refinance replaces your existing mortgage entirely with a new, larger one, always as an uninsured mortgage requiring at least 20% equity. A HELOC is a revolving credit line you can draw from and repay repeatedly.
| Feature | Second Mortgage | Refinance | HELOC |
|---|---|---|---|
| Structure | New loan added behind your existing first mortgage | Replaces your existing mortgage with a new one | Revolving credit line, separate from or combined with your first mortgage |
| Effect on existing mortgage | Existing first mortgage stays untouched | Existing mortgage is fully replaced | Existing mortgage stays untouched |
| Typical rate | Higher than your first mortgage | Reflects current market rates for your mortgage type | Typically variable, tied to prime |
| Maximum borrowing | Based on remaining equity after the first mortgage | Up to 80% of appraised value (20% equity must remain) | Up to 65% of appraised value alone, or up to 80% combined with a first mortgage |
| Access to funds | Lump sum | Lump sum | Draw as needed, repay and reborrow |
| Subject to the stress test | Depends on lender | Yes, always | Yes, at federally regulated lenders |
| Best for | Keeping a low rate on your first mortgage while borrowing more | Consolidating debt or restructuring your whole mortgage | Flexible or ongoing borrowing needs |
The verdict
If your existing first mortgage has a rate well below current market rates, a second mortgage or a HELOC lets you access equity without disturbing that first mortgage, though a second mortgage typically carries a higher rate for the new borrowing. A HELOC adds flexibility if your borrowing needs are ongoing or uncertain. A refinance makes more sense when you want to simplify into one mortgage or restructure your amortization, but it requires giving up your existing mortgage terms entirely. A mortgage broker can run the numbers on all three and show the actual cost difference.
Have questions about your situation? An advisor can walk you through it.