GLOSSARY — REAL ESTATE TERMS
HELOC / Second Mortgage
A HELOC (Home Equity Line of Credit) is a revolving credit line secured by a homeowner's equity, while a second mortgage is a lump-sum loan secured by that same equity -- both sit behind the primary mortgage in repayment priority.
HELOC vs. a traditional second mortgage
A HELOC works like a credit card secured by home equity -- borrow, repay, and borrow again up to the credit limit during a draw period. A traditional second mortgage instead provides a single lump sum with fixed repayment terms, similar to the primary mortgage itself.
How this affects a home purchase or sale
If a seller has an existing HELOC or second mortgage, both must be paid off or otherwise resolved at closing alongside the primary mortgage, since all liens need to be cleared for the buyer to receive clean title. A buyer considering a HELOC after purchase should note it's typically arranged separately, after closing, once sufficient equity exists.
WHAT TO CHECK REGARDING A HELOC OR SECOND MORTGAGE
- If selling, confirm your HELOC or second mortgage payoff amount early in escrow
- If buying, verify the seller's existing liens will be cleared before closing
- If considering a HELOC after purchase, ask lenders about draw period and repayment terms
- Understand a HELOC's variable rate risk before relying on it for major expenses
Can I get a HELOC as part of my home purchase?
Generally no -- a HELOC requires existing equity, so it's typically arranged after you've owned the home for some time, not as part of the initial purchase financing.
Does a seller's HELOC affect my purchase?
It shouldn't affect you directly -- escrow ensures the seller's HELOC and any other liens are paid off from sale proceeds before you receive clear title.
Is HELOC interest tax deductible?
It can be under certain conditions, generally when the funds are used to substantially improve the property securing the loan -- a tax professional can confirm your specific situation.