As a homeowner, you may need access to extra funds at times, perhaps for renovation, debt consolidation or a big purchase. 

For various expenses, a second mortgage can provide a valuable solution to you as a homeowner. But do you know the difference between the various types of second mortgages? Have you done a comparison of second mortgages to see which is best for you? 

Sometimes known as equity loans, not all second mortgages are the same. You must choose between a fixed-rate second mortgage or a variable-rate second mortgage. 

Each loan has distinct benefits and drawbacks, and the right choice depends on your financial goals, risk tolerance and market conditions.

Read on as we compare second mortgage options—variable-rate versus fixed-rate second mortgages. Together, we’ll show you how to determine which may better fit your needs.

What is a second mortgage?

A second mortgage allows qualified homeowners to borrow against the equity they’ve paid into their home while keeping their primary mortgage in place. 

It’s considered a second mortgage because it is subordinate to the primary mortgage. 

In the unfortunate event of loan default, the lender of the primary mortgage is paid before the lender of the second mortgage.

Homeowners often use second mortgages for:

• Home renovations, remodels and repairs
• Debt consolidation
• Education expenses
• Medical bills
• Investment opportunities

Second mortgages come in two primary forms: 

1. Fixed-rate
2. Variable-rate 

Each offers different advantages depending on the borrower’s financial situation.

Fixed-rate second mortgage compared with variable-rate second mortgage

Second mortgages tend to come with higher interest rates than first mortgages. Because of this, the differing features of a fixed-rate second mortgage and a variable-rate second mortgage are vital to making the right decision. 

Here’s a breakdown of how these two loan types compare.

Fixed-rate second mortgage

A fixed-rate second mortgage (sometimes identified as FRM), also known as a fixed-rate home equity loan (or HELOAN), has an interest rate that remains unchanged throughout the loan term. 

Borrowers receive a lump sum of money with repayment made through fixed monthly payments.

Pros of fixed-rate:

• Predictability: Budgeting can be easier if your monthly payments remain the same.
• Stable interest rates: You won’t have to worry about market fluctuations increasing your rate.
• Long-term security: If rates rise, you’ll still pay the lower, locked-in rate.

Cons of fixed-rate:

• Higher initial interest rates: Fixed rates are often slightly higher than variable rates.
• Less flexibility: If market rates drop significantly, you won’t benefit from the lower rate without refinancing.

Variable-rate second mortgage

A variable-rate second mortgage, also known as an adjustable-rate mortgage (ARM or, if a second mortgage, a HELOAN), has an interest rate that fluctuates over time based on various market factors. 

Your monthly payments might go up or down during the loan’s life.

Pros of variable rate:

• Lower initial interest rates: Variable rates typically start at a lower percentage than fixed rates.
• Potential cost savings: If interest rates stay low or decrease, borrowers may pay less over time.

Cons of variable rate:

• Unpredictable payments: Monthly payments can increase if interest rates rise.
• Market-dependent costs: If rates climb significantly, borrowing costs can become much higher than expected.

Choosing between a fixed-rate and a variable-rate second mortgage depends on whether you prioritize stability or are comfortable with some risk in exchange for potentially lower costs.

Can you get a fixed-rate second mortgage?

Yes, most homeowners with equity can get a fixed-rate second mortgage. 

Loan approval will depend on lenders, market conditions and the borrower’s financial snapshot. 

Fixed-rate second mortgages are popular for those who prefer consistent payments and financial predictability.

To qualify for a fixed-rate second mortgage, lenders typically require:

• Sufficient home equity: Lenders often allow borrowing up to 80-85% of the home’s value minus the primary mortgage balance.
• Good credit score: Higher credit scores result in better loan terms and interest rates.
• Stable income: Lenders will review income and debt-to-income ratio (DTI) to ensure affordability.
• Loan purpose: Some lenders may restrict how the funds can be used.

While fixed-rate second mortgages can be a great choice for those who value security, it is important to compare offers from different lenders to find the best rate and terms.

How to decide which second mortgage is right for you

Can’t decide between a fixed-rate and variable-rate second mortgage? The choice mostly depends on your financial goals and risk tolerance. 

Consider the following key factors in your decision. 

Choose a fixed-rate second mortgage if you:

• Prefer stable monthly payments and long-term predictability
• Expect interest rates to rise in the future
• Plan to keep the loan for the full term
• Want easier budgeting without the risk of fluctuating payments

Choose a variable-rate second mortgage if you:

• Want lower initial payments and are comfortable with changes over time
• Predict interest rates to remain low or decline
• Plan to pay off the loan quickly before rates rise
• Can handle potentially higher future payments

Steps to apply for a second mortgage

Regardless of the second mortgage type, the application process generally involves the following steps:

1. Evaluate your home equity: To determine how much you can borrow, consider your home’s value and existing mortgage balance.
2. Check your credit score: A higher score generally increases the odds of securing favorable loan terms.
3. Compare lenders: Look at interest rates, loan terms and fees from multiple lenders.
4. Gather documentation: Provide proof of income, credit history and details about your home.
5. Submit your application: Each lender has their own application process that they can help you through.
6. Review loan terms: Carefully examine the loan agreement to ensure you understand interest rates, repayment terms and fees.
7. Receive funds: If approved, a lump sum of funds is provided for fixed-rate loans or a line of credit for variable-rate options.

Can you get a fixed-rate second mortgage? Comparison final answer

A fixed-rate second mortgage may be the better choice if you prioritize stability and predictable payments. 

However, a variable-rate second mortgage could work for you if you are comfortable with potential interest rate fluctuations and want a lower initial rate.

Before deciding, consider your long-term financial goals, consult with a lender and explore all available options. 

With the right second mortgage, you can access the funds you need while ensuring financial stability.

Compass Mortgage for second mortgage options

Choosing the right second mortgage lender can significantly affect your financial outlook. 

The Compass Mortgage team is dedicated to finding the right mortgage solution for your needs. 

Apply for your second mortgage with Compass Mortgage today.  

Access your home equity with our simple, personalized loan process.