What’s the Difference Between a Home Equity Line of Credit and a Closed-End Second Mortgage?

A couple smiling after learning the answer to the question, What’s the difference between a home equity line of credit and a closed-end second mortgage?

What’s the Difference Between a Home Equity Line of Credit and a Closed-End Second Mortgage?

What’s the Difference Between a Home Equity Line of Credit and a Closed-End Second Mortgage?

A couple smiling after learning the answer to the question, What’s the difference between a home equity line of credit and a closed-end second mortgage?

Your home is more than where you build your life; it is where you make your dreams come true, too. And this is true in more ways than one. An essential consideration for homeowners is that, if you have built equity in your home, your home could be your greatest asset in capitalizing on investment opportunities. But many people ask, What’s the difference between a home equity line of credit and a closed-end second mortgage

We’re here to help. At mbanc, our passion is supporting people with premier lending solutions to capitalize on opportunities that can create the kind of financial freedom the American Dream was built on. Learn the difference between these two options in our blog.

What’s the Difference Between a Home Equity Line of Credit and a Closed-End Second Mortgage?

Core distinctions are essential to understand for those asking themselves, What’s the difference between a home equity line of credit and a closed-end second mortgage?

Both a home equity line of credit (HELOC) and a closed-end second mortgage, sometimes called a closed-end home equity loan, hinge on equity. With both types of financing, you can obtain up to 80% of the equity you have built in your home. The key distinction is how.

What is a Home Equity Line of Credit?

Understanding a HELOC is important for those wondering, What’s the difference between a home equity line of credit and a closed-end second mortgage

A HELOC is a revolving line of credit guaranteed by your home equity. You can borrow as much as you need up until the predetermined limit whenever you need it and only have to make payments on the amount you have borrowed and not the full amount available. 

You also receive some tax benefits when you use a HELOC. Still, a HELOC often changes a borrower’s loan terms and results in the borrower being stuck with higher, variable interest rates, which is one significant drawback of using this financing option. 

What is a Closed-End Second Mortgage?

With a closed-end second mortgage, however, you can take out up 80% of the home equity you have built in a single lump sum, which can be invaluable to borrowers who have uncovered a once-in-a-lifetime investment opportunity and time is of the essence.  

A huge benefit of using a closed-end second mortgage is that it doesn’t interfere with your original loan terms, meaning you can preserve your advantageous 2% 3% fixed interest rate. Holding onto the existing low-interest rate is a primary concern for borrowers.

A fixed interest rate is a great opportunity if you lock into them when rates are low. In 2023, with economic uncertainty swelling, interest rates continue to fall, so securing interest rates now could pay dividends down the line.

Once you receive these funds, you can use them for whatever you want, including building more equity in a home to maximize the ROI from investments. Key highlights of mbanc’s closed-end second mortgage include:

  • Mortgage amounts up to $500,000 
  • Standard loan terms for 15 to 30 years
  • Maximum loan to value of 85%
  • A minimum credit score of 660
  • 30-year fixed terms available
  • Maximum DTI is 50%
  • Eligibility of primary residences, second homes, and investment properties
  • Eligibility single-family homes, condominiums, and 2-4 unit homes
  • DSCR (for short or long-term rentals) allowed

“Many lenders allow borrowers to take out up 80% of the equity they have built in their home. At mbanc, however, we enable greater flexibility for borrowers by allowing them to take out up to 85% of their home equity with a closed-end second mortgage. Plus, we offer a faster and easier approval process, which makes accessing these funds even quicker than it would be with other lenders for emergency or last-minute expenses.” -Mayer Dallal, Managing Director, mbanc

Apply for a Closed-End Second Mortgage Today

So, what’s the difference between a home equity line of credit and a closed-end second mortgage? The key differences lie in how you receive the financing and the loan terms available. With a closed-end second mortgage, you can access funds quickly, which is advantageous to investors. Closed-end second mortgages also don’t interfere with interest rates, so you can enjoy low, fixed rates. 

If you are interested in making your equity work for you in record time and holding onto low-interest rates, apply for a closed-end second mortgage today.

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