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If the terms of your home equity line of credit (HELOC) no longer feel like a good fit, you may be wondering if you can refinance your HELOC with another bank.

The answer is yes, you can. There are several HELOC refinancing options available. And depending on your reasons for refinancing, and the terms other lenders are offering, you might be able to benefit from switching to a different lender.

Read on for a look at what it can take to refinance a HELOC, some pros and cons, and whether it might make sense for you.

HELOC Refinancing Explained

A HELOC is a revolving line of credit that usually comes with a variable interest rate — which can make it seem very much like using a credit card. You can tap into your credit line at any time (up to a preapproved limit). And you can use the money for just about anything you want.

Unlike a credit card, however, a HELOC is secured by the equity in your home. Which means the credit limit for a HELOC will likely be higher than a credit card, and the interest rate will likely be lower. But if you default on your payments, you could be putting your home at risk of foreclosure.

Another significant difference between HELOCs and credit cards is that the life of a HELOC is divided into two phases:

•   With a HELOC, you can only use the money from your credit line for a fixed period of time (usually 5 or 10 years) called the “draw period.” During this time, you can make payments toward your principal and interest, if you like. But typically, HELOC borrowers are only required to make interest payments during the draw period.

•   When the draw period ends, the “repayment period” begins. During this phase, which generally lasts 10 to 20 years, the focus turns to paying back the principal, along with any interest that’s due.

This is where the option to refinance a HELOC might make sense for some borrowers. Depending on how large the account balance has grown over time, your monthly payments could be substantially higher during the repayment period than they were during the draw period — especially if interest rates have gone up over the years. If you can transfer your HELOC to another bank with more competitive terms (a lower interest rate, for example, or a longer loan length), it could help bring those payments down. You also could refinance to a new HELOC so you can continue borrowing against your equity with another draw period.

Eligibility for HELOC Refinancing

When you refinance a HELOC, you’re basically taking out a whole new line of credit or a new loan to replace your current account. And the eligibility requirements lenders want you to meet may be different from those of your original HELOC. With a refinance, you can expect lenders to look at several factors, including:

•   Home equity: Home equity is the value of your home minus the amount you still owe, and to qualify for a HELOC, you typically must have at least 15% to 20% equity in your home. (A home equity loan calculator can help you estimate how much you might be able to borrow.)

•   Debt-to-income (DTI) ratio: Lenders look at your DTI ratio (all monthly debt payments / gross monthly income = DTI) to determine how much of your income goes toward paying your monthly debts. Generally, lenders like to see a DTI ratio that’s no higher than 43% to 50%, but the lower the better.

•   Loan-to-value (LTV) ratio: The amount you’re allowed to borrow can also be affected by your LTV ratio (your mortgage balance / your home’s current value). Having a lower LTV can improve your chances of meeting refinance requirements. Lenders also like to see a low combined loan to value (CLTV) ratio (that’s all the secured loans on your home / the value of your home) to be sure you aren’t taking on too much debt.

•   Credit standing: Having a good credit score and solid credit history can help you qualify for financing and get a better interest rate.

Types of HELOC Refinancing Options

If you’re thinking about refinancing your HELOC, you may have a few different options to consider, including:

Replacing Your Current HELOC with a New HELOC

Refinancing to a new HELOC can allow you to reset your draw period (giving you more time to keep borrowing) and postpone your repayment period. You also may qualify for more favorable terms — a fixed and/or lower interest rate, for example, or a longer loan term with lower monthly payments. It’s important to keep in mind, though, that if you refinance and you don’t pay down your principal, you could end up paying more interest over time. And if you sell your home, you’ll likely have to pay off your HELOC as part of that transaction. You can use a HELOC monthly payment calculator to see how different interest rates will affect your monthly payments.

Paying Off Your HELOC with a Home Equity Loan

There are different types of home equity loans. A basic home equity loan is similar to a HELOC in that it’s secured with the equity in your home. But unlike a HELOC, a home equity loan is paid out as a lump sum and usually has a fixed interest rate. This can make payments more predictable, and easier to plan for. But again, you could end up paying more interest over time than you would with the original HELOC. And if you sell your home, you may need to pay off the home equity loan. These are all considerations as you weigh a new HELOC vs. a home equity loan.

Using a Cash-Out Refinance

With a cash-out refinance, you would replace your original mortgage with a new, larger mortgage, and use the money that’s left over to pay off your HELOC. If you can get a fixed interest rate that’s lower than what you’ve been paying, this strategy might make sense, especially if you can also refinance to a mortgage with a shorter term. And as an extra bonus, you’ll have the convenience of combining two payments into one. But better terms aren’t guaranteed, so it’s a good idea to check out what various lenders are offering.

Modifying Your HELOC with Your Current Lender

If your current lender will work with you to lower your monthly HELOC payments, that may be the most convenient option. If you have a good relationship, you can try asking about extending your repayment term, lowering your interest rate, moving to a fixed rate, or even reducing your principal. Even if you get a positive response, though, you may want to take some time to look at what other lenders are offering and what best suits your needs and goals.

Recommended: HECM vs. HELOC

The HELOC Refinancing Process

The process for refinancing your HELOC is pretty much the same whether you choose a new HELOC, a home equity loan, or some other option. Here are some of the basic steps:

Getting Reacquainted with Your Current HELOC

If it’s been a while since you looked at the terms of your HELOC, take a moment to get reacquainted with the important details — including your current balance, your repayment terms, any fees you might owe, the current interest rate, and what you could end up paying in the future if rates go up.

Comparing Lenders and Offers

Once you’ve reviewed your current HELOC, you can do some comparison shopping to see what other lenders might offer you. Look at interest rates, fees, and other loan terms. And if you can, read reviews to get a feel for what it might be like to work with a particular lender. Keep both your short- and long-term goals in mind as you evaluate various refinancing options.

Applying for Refinancing

Be prepared to provide current mortgage and bank statements, proof of income and employment, a home appraisal, and any other documentation your lender asks for. You can also expect your lender to run a credit check.

Keep in mind that you can only refinance your HELOC if you have adequate equity in your home. If you don’t have at least 15% or 20% in equity, based on the home’s current fair market value, you may not qualify for refinancing.

Costs Associated with HELOC Refinancing

No matter which method you might choose to refinance your HELOC, you can expect to pay closing costs on the new loan. These can include an appraisal fee, loan origination fee, application fee, credit reporting fee, attorney fee, and more. Closing costs vary depending on the type of loan, the loan amount, and the lender. Though closing costs for some loans can be as high as 2% to 5% of the loan amount, with a HELOC, you may be able to pay as little as 1%.

Pros and Cons of Refinancing Your HELOC with Another Bank

If you’re thinking about refinancing your HELOC with a different lender, there are a few pros and cons you may want to consider.

Recommended: HELOCs and Taxes

The Takeaway

If you think you may be able to qualify for a more affordable monthly payment by refinancing into a new HELOC or home equity loan, or by doing a cash-out refinance with your first mortgage, it can make sense to check out the options with other lenders when you are wondering if you can refinance a HELOC with a different bank. It’s easy to hop online and compare what lenders are offering. And that can help you decide if refinancing would help you meet your financial goals.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

How soon can I refinance my HELOC after opening it?

If you’re hoping to avoid high monthly payments or you want to extend your draw period, it can make sense to refinance your HELOC before you enter the repayment period. But it’s a good idea to review your HELOC agreement to determine if your lender assesses a penalty for closing your HELOC out early.

Will refinancing my HELOC affect my credit score?

Refinancing your HELOC could temporarily affect your credit score. But you can minimize the impact by making your HELOC and other payments on time and by not applying for any other credit accounts for a while.

Can I refinance a HELOC on an investment property?

You may be able to refinance a HELOC on an investment property, but in general, HELOCs are not as common for investment properties as they are for primary residences. Fewer lenders offer them, and the eligibility requirements may be more strict.

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Photo credit: iStock/Inside Creative House

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOHL-Q125-072

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If you’re thinking about accessing some of the equity in your home, but you’re a little confused about the mix of terms used to describe this type of borrowing, you’re not alone.

Understanding the subtle differences in how these borrowing options work (a home equity loan vs. a second mortgage vs. a HELOC, for example) can be challenging. But the more you know, the more equipped you can be to make the best choice for your needs.

In this guide, we’ll break down what the different terms mean, some of the pros and cons of each type of financing, and factors that might influence which option you choose.

Key Differences Between Second Mortgages and Home Equity Loans

Ready to have the fog lifted a bit? Let’s start by defining the term “second mortgage,” and discuss how it relates to the term “home equity loan.”

A second mortgage is pretty much just what it sounds like: You’re adding a second mortgage loan to your existing primary mortgage, and your home is the collateral for both loans. The first mortgage is secured by your home, and the second mortgage is secured by the equity you’ve managed to build up in that home.

You see where this is going, right? A home equity loan is a type of second mortgage. But — plot twist! — all second mortgages aren’t necessarily home equity loans. Another type of financing you’ve likely heard of, a home equity line of credit (HELOC), is also considered a type of second mortgage. (A third and less common second mortgage: Some homebuyers, including those with FHA loans, may get a second mortgage when they initially buy their home, as a way of helping to make the down payment.)

So there are two basic types of second mortgages: home equity loans and HELOCs. And there are some important differences between these two options.

Loan Structure

•   A second mortgage that is a home equity loan is considered a “closed-end” loan, which means the borrower receives a lump-sum payment upfront and repays that amount over time. When you pay down the balance — even if you pay off the loan early — you can’t re-borrow, or “draw” from the same loan again. If you need more money, you have to take out a new loan. (You can get an idea of how much you might be able to borrow with a home equity loan calculator.)

•   A HELOC, on the other hand, is an “open-end” line of credit. You can take out cash as you need it, up to the credit limit, and as you repay your outstanding balance, the amount of available credit is replenished, much like a credit card. You can borrow against it again and again, if you need to, throughout your draw period (which is typically 10 years). Usually, you’re only required to make minimum or interest-only payments during this time. Then, when the draw period ends, the repayment period begins.

Interest Rates

•   A second mortgage that’s a home equity loan will typically have a fixed interest rate that’s higher than the mortgage rate for your primary home loan but lower than the rate you’d likely get with an unsecured loan, like a personal loan.

•   A HELOC is also secured with your home, so the interest rate will likely be lower than if you used a credit card. But like a credit card, a HELOC often comes with a variable interest rate, which means the rate can change over time. (There may be an initial fixed rate for an introductory period before the variable rate kicks in.) Much in the way that mortgage rates drive costs on a variable-rate mortgage, if interest rates rise during the variable-rate period, so do the costs associated with your HELOC. This can affect the monthly payments and the total interest paid over the life of the line of credit.

Repayment Terms

•   Home equity loans usually have fixed monthly payments that are made over a predetermined loan term that could range from five to 30 years.

•   A HELOC repayment term, which starts after the draw period is over, generally lasts 10 to 20 years. During this time the interest rate may fluctuate, which means monthly payments may be less predictable. If interest rates rise, your payments could be higher than you expected; if they drop, your payments could be lower. (You can use a HELOC repayment calculator to estimate what your payments might be.)

Pros and Cons of Second Mortgages

As with most types of financing, the different types of home equity loans have pros and cons to consider.

Advantages

•   Because the loan or line of credit is secured with your home as collateral, you can expect your interest rate to be lower than the rate for an unsecured loan or line of credit, like a personal loan or credit card.

•   If your second mortgage is a HELOC, you can decide how much to withdraw (up to your credit limit) and when to withdraw it, and you’ll only pay interest on what you’ve borrowed. The money in the account will be there if you need it at any time during the draw period, but you’ll have some flexibility in how you use it.

•   Unlike many other types of loans (auto loans, first mortgages, student loans), you can use the funds from your HELOC or home equity loan for just about anything you want.

•   The interest you pay may be tax deductible, if you use the money for qualifying home improvements. You’ll want to talk to a tax advisor about this deduction.

Disadvantages

•   Securing your second mortgage with your home as collateral can put you at risk of foreclosure if you default on your payments.

•   If your home’s value declines, you could end up owing more than your home is worth. And if you have a HELOC, your lender may decide to freeze or reduce your line of credit.

•   Closing costs for second mortgages are generally lower than for primary mortgages, but you can still expect to pay some fees when you close on your loan or line of credit.

•   You will likely have to repay your home equity loan or HELOC if you sell your home.

Recommended: HELOC Loan Guide

Pros and Cons of Home Equity Loans

Both HELOCS and home equity loans are a type of a second mortgage, and they have some similar traits and some that differ. Here are some pros and cons that are specific to home equity loans.

Advantages

•   Because you get your money upfront with a home equity loan, it can be a useful way to pay for a large one-time expense, such as a home renovation, or for debt consolidation.

•   Home equity loans typically come with a fixed interest rate and a predictable fixed monthly payment, which can make it easier to budget for and plan around.

Disadvantages

•   With a home equity loan, you’ll immediately start paying interest on the full amount of the loan each month, even if you haven’t used the money.

•   If you don’t know exactly how much you’ll need for a home renovation, medical procedure, etc., you could under-borrow, and you might have to get another loan to finish the work. (With a HELOC, you can keep borrowing and repaying for several years without getting additional approvals or filing new paperwork.)

Recommended: Mortgage Preapproval

Choosing Between a HELOC and a Home Equity Loan

Because there are pros and cons to both second mortgage options, it may be difficult to choose between a home equity loan vs. a HELOC. Here are some points to consider:

Assessing Your Financial Needs

How do you plan to use the funds from your second mortgage? As you weigh a HELOC vs. second mortgage in the form of a home equity loan, consider this:

•   If your goal is to make a large one-time purchase, a home equity loan — which comes in a lump-sum payment — may be the better choice.

•   If you like the idea of having more flexibility in how much you borrow and when you borrow it, a line of credit — which you can use and pay back and use again — might be the right option.

Evaluating Interest Rates and Terms

Which terms better suit your purposes (and personality)? When thinking about using a HELOC second mortgage vs. a home equity loan consider this:

•   A home equity loan has a fixed interest rate and a traditional loan structure with more predictable monthly payments.

•   A HELOC usually has a variable interest rate, which can fluctuate over time. During the first years that you have the line of credit, the “draw period,” you may only have to make minimum or interest-only payments. But when you enter the repayment period, if interest rates have increased, your payments may be higher than you anticipated.

Considering Tax Implications

The interest on both a HELOC and a home equity line of credit may be tax deductible, but only if you use the funds “to buy, build, or substantially improve the residence” you used to secure the loan. (Note that this IRS rule expires at the end of 2025. If it isn’t renewed by Congress, the interest from either type of second mortgage may be deductible in the future — with some limitations — regardless of how the homeowner uses the money.)

The Takeaway

Both home equity loans and home equity lines of credit (HELOCs) are a type of second mortgage. And though they share some similarities, there are also some differences that are important to consider when you’re trying to decide which option is better for your needs.
While both home equity loans and HELOCs allow you to tap into your home’s equity if you need money, a HELOC offers the option to draw only what you require and to pay as you go. This can make it an option worth considering if you’re not sure how much money you need upfront for a project or purchase, or if you want to have a backup plan to cover unexpected costs as they come up. It can also keep your costs down in the first years that you have the HELOC.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

Are interest rates typically higher for second mortgages or home equity loans?

The interest for a second mortgage — whether it is a home equity loan or a HELOC — is typically lower than what you might find with an unsecured loan. The interest rate on any mortgage can depend on several factors, including the borrower’s creditworthiness and loan-to-value ratio, and the prime rate. But second mortgages often have a higher interest rate than primary mortgages.

Can I use funds from a second mortgage or home equity loan for any purpose?

Yes, you can use the money from a second mortgage for just about any purpose.

How does the repayment term differ between a second mortgage and a home equity loan?

A home equity loan is a type of second mortgage. It usually has a fixed repayment schedule for the life of the loan, and repayment begins as soon as you receive the lump-sum loan. Another type of second mortgage, a home equity line of credit (HELOC) has two phases of payments: There is a draw period, during which payments are typically interest-only, and a repayment period when you repay all that you’ve borrowed, plus interest.

What are the risks associated with taking out a second mortgage or home equity loan?

Securing a loan or a line of credit with your home as collateral can put you at risk of foreclosure if you default on your payments. Also, if your home value declines, you could end up owing more than your home is worth.

How does my credit score affect eligibility for a second mortgage or home equity loan?

The higher your credit score, the more likely you are to be approved for a second mortgage. Your credit score also can affect the interest rate and borrowing terms you are offered.

Can I borrow against my home equity if my house is paid off?

Yes. If you have good credit and meet other eligibility requirements, you should be able to use the equity in a paid-off home to get either a HELOC or a home equity loan. (It wouldn’t be referred to as a “second mortgage” in this situation, however.)

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Photo credit: iStock/VioletaStoimenova

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

SOHL-Q125-069

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Most physicians can expect to earn a good living once they complete their education and training. But by the time they graduate and start their first job, many new doctors are also likely to find themselves deep in student loan debt.

That debt may make it difficult for physicians to qualify for a conventional home mortgage — even though they have a promising financial future. That’s where home loans for doctors come in. Some lenders offer special mortgages called physician loans or doctor mortgage loans. These loans have terms designed to meet the unique needs of newcomers to this profession. Note: SoFi does not offer physician mortgages, but it does offer home mortgage loans with a low down payment for first-time homebuyers.

Read on for a look at how physician mortgages work, some pros and cons, and what it can take to qualify.

What Are Physician Mortgage Loans?

Physician mortgage loans are private mortgages designed specifically to meet the needs of doctors, dentists, medical residents, and fellows. The terms and benefits of these home loans for medical doctors can vary from one lender to the next. But they generally offer more generous terms and/or looser qualifying requirements than conventional home loans. This can make borrowing easier for physicians who have a high income potential but may be struggling with student loan debt or haven’t been able to set aside enough for a down payment.

How Physician Mortgage Loans Differ from Traditional Loans

Doctor loans are a type of nonconforming loan, which means they aren’t backed by the federal government like FHA loans, and they aren’t bound by the same Fannie Mae and Freddie Mac standards as conventional loans. Here are a few important differences you can expect to find with this type of mortgage vs. a conventional loan:

Recommended: Different Types of Mortgage Loans

Low or No Down Payment

Most lenders require at least a 3% to 5% down payment for a conventional mortgage, with the lowest rates typically available to first-time homebuyers. Lenders who offer physician mortgages may not require any money down. (Or the down payment amount required may be very low.)

No Private Mortgage Insurance (PMI)

With a conventional loan, private mortgage insurance, which is meant to protect the lender in case of a default, is usually added to borrowers’ monthly payments until they reach 20% equity in their home. Though PMI rates vary, they typically range from 0.50% to 2% of the loan amount. But doctor loans don’t require PMI, even though the borrower may not make any down payment.

Flexible Debt-to-Income (DTI) Ratio Requirements

As part of their underwriting, lenders typically calculate a borrower’s DTI ratio (all monthly debt payments ÷ gross monthly income = DTI). For conventional mortgages, they usually require a DTI ratio below 45%, although some require the DTI to be below 36%. But lenders who provide physician loans may look at a borrower’s student loans (which they expect to be high) as separate from other debt and not include them in the DTI, or they may include the student loans but set a higher DTI limit.

You may want to keep in mind, though, that just because you can get a loan with a higher DTI ratio doesn’t mean you should. A home affordability calculator can help you see what might fit into your budget and a mortgage calculator can show you what your monthly payments would look like at different interest rates.

It might also be helpful to talk to a financial advisor about how much house you can really afford, and what the costs of homeownership could mean for your overall financial well-being.

Looser Employment and Salary Requirements

Proving that you have stable employment as well as an adequate income is usually part of qualifying for a conventional loan. (Lenders generally like to see at least two years of work history.) Employment requirements may vary with a doctor loan, but lenders who offer these types of mortgages typically understand that a new doctor could be working as an intern, resident, or fellow, and may not be earning as much starting out as they will take home even just a few years into their career. (Borrowers still can expect to provide paperwork that documents their salary and employment, however, along with their medical license.)

Recommended: Understanding Mortgage Basics

Benefits of Physician Mortgage Loans

If you’re eager to get into your own home once you wrap up medical school, a physician home loan may make that possible — and less expensive. Avoiding PMI on a new home could save you hundreds or even thousands of dollars a year, for example. And if you don’t have to make a down payment, you can use that money for other expenses.

Lenders also may offer higher loan amounts with a physician loan than with other loan types. And though some lenders offer doctor loans with fixed rates, most come with variable interest rates, so you can expect to start out with a lower, more affordable interest rate when you begin making payments. (That means you’ll have an adjustable rate after a fixed introductory period, so your monthly payments could change. But if the rate becomes unmanageable down the road, you can look at refinancing to a conventional loan with a more competitive mortgage rate.)

How to Qualify for a Physician Mortgage Loan

Though the underwriting requirements may be more relaxed for doctor loans, you should be prepared to provide the following:

•   Proof of identity (this might include your driver’s license, Social Security number, or other documentation)

•   Proof of employment and income (you may be able to use an employment contract if you don’t yet have a W-2, pay stubs, or similar documents)

•   Documentation of assets and debts

•   A contract for your home purchase, including the purchase price

•   Information about the type of home you’re purchasing (condo, single-family home, etc.)

•   Proof of a medical degree (M.D., D.O., D.D.S., etc.) that meets the lender’s requirements

Other parts of the mortgage process — from determining what you can afford to choosing mortgage terms to closing on the deal — will likely be similar to what you’d expect if you were applying for just about any type of loan.

The Takeaway

If you’re finally starting your career as a doctor and you’re wondering if student debt or minimal savings could keep you from reaching the goal of home ownership — despite your income potential — a physician home loan may be an option worth researching.

Because these special loans typically don’t require a down payment or private mortgage insurance payments, and the eligibility requirements are often less strict than for conventional loans, doctors may not have to wait until they’re on firmer financial footing to purchase a home.

Of course, you’ll want to compare all the pros and cons of a physician mortgage — or any home loan. Buying a home is a big decision, and you’ll likely want to balance your eagerness to reach this milestone with your ability to keep pace with your mortgage payments and your debt payments, as well as other expenses.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What credit score do I need to get a physician mortgage loan?

A credit score of at least 700 or 720 may be required to get a physician loan, although some lenders may accept a lower credit score. Each lender has its own criteria.

Are physician mortgage loans available for residents and fellows?

Employment requirements may vary, but lenders who offer these types of loans typically understand that a new doctor could be working as an intern, resident, or fellow.

How do interest rates compare for physician mortgage loans vs. conventional loans?

Doctor’s mortgage loans generally come with a variable interest rate. After a fixed introductory period, your payments could go up or down, depending on several factors. With conventional mortgages, you may have a wider range of interest rate types to choose from.

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Photo credit: iStock/nortonrsx

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

SOHL-Q125-061

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If you own a home, a home equity line of credit (HELOC) lets you tap into your home equity to finance renovations or other expenses. Before borrowing against your home equity, it’s worth asking, how does a HELOC affect credit scores?

Taking out a new credit account has an impact on your credit score. But how a home equity line of credit affects credit scores depends on multiple factors, including your payment history and existing credit.

Here’s a look at how a HELOC could affect your credit score across the entire lifespan of the line of credit, from filing your application to closing a HELOC account — plus tips to maintain your credit score.

Understanding HELOCs and Credit Scores

First, let’s start with a HELOC definition. A HELOC, or home equity line of credit, is a revolving line of credit that typically allows homeowners to borrow up to 90% of their home’s value, minus the outstanding mortgage principal. Borrowers can draw against their approved credit line as needed until the end of the draw period, which is usually 5 or 10 years, before having to repay the balance over another 10 to 25 years. That’s HELOCs explained, in a nutshell.

Meanwhile, your credit score is calculated based on how you manage debt payments, also known as credit. A variety of factors affect your credit score, including payment history, credit utilization, length of credit history, credit mix, and applications for new credit. Your credit score appears as a three-digit number. Credit score ranges run from 300 to 850, with scores of 670 or higher being considered good to excellent.

Impact of Applying for a HELOC on Your Credit

So how does a HELOC impact credit scores? Similar to other types of credit, applying for a HELOC involves a credit check, which is added to your credit report.

Hard Inquiries

When you apply for a HELOC, lenders will run a credit check to assess your creditworthiness. This involves requesting to review your credit report, which is known as a hard inquiry.

A record of any hard inquiry, sometimes referred to as a hard pull, is registered on the credit report. Having one hard inquiry could lower your FICO® Score by up to five points, but only for one year.

To avoid multiple hard credit pulls, you can check to see if lenders offer HELOC prequalification with a soft credit pull instead.

New Credit Accounts

Applying for a HELOC means opening a new credit account. This could decrease the average age of your credit accounts and ding your credit score by a few points.

Effects of Using a HELOC on Your Credit

Once you’ve been approved for a HELOC, how you begin using funds and managing payments can affect your credit. Let’s explore what goes into these HELOC credit score impacts.

Credit Utilization Ratio

Your credit utilization ratio is a calculation of how much of your credit you’re using. In other words, it’s the percentage of your credit limit you’re using on all your revolving credit accounts, such as credit cards, combined.

So does a HELOC affect your credit score and credit utilization ratio? While HELOCs operate like a revolving line of credit, they’re secured by a property. This means that it isn’t included in your credit utilization ratio as part of your FICO score.

Using funding from a HELOC to pay off high-interest debt like credit cards could lower your credit utilization ratio and boost your credit score. Maintaining a credit utilization ratio below 30% is recommended to qualify for financing or get mortgage preapproval.

Payment History

Payment history is the largest component of a credit score. Making consistent, on-time payments each month on a HELOC could help build your credit score over time. On the flip side, failing to stay current on payments could hurt your credit score and ultimately put your property at risk.

HELOCs are typically structured to have higher monthly payments after the draw period ends. Once the repayment period begins, you won’t have the ability to continue drawing funds. You can use a HELOC repayment calculator to see what your monthly payment would be based on how much you owe on a HELOC, your repayment term, and interest rate.

Credit Mix

Your credit mix refers to the number and types of credit accounts you have, including student loans, home loans, credit cards, and car loans. Demonstrating your ability to manage different types of debts can benefit your credit score.

Taking out a HELOC could improve your credit mix (and credit score) if you don’t have other types of revolving credit, especially for borrowers without much credit history.

Bottom line: The HELOC–credit score connection can be significant.

Recommended: FHA Loans

Closing a HELOC and Its Credit Implications

Paying off and closing a HELOC can have impacts on your credit. (Paying the balance off on a HELOC removes the lender’s lien on your home.) Here are some potential credit implications to consider when closing a HELOC.

Account Age

If you’ve been making payments on a HELOC for several years, closing the account could potentially lower the average age of your accounts. How much this impacts your credit score will depend on the age of your other accounts.

But if the account is in good standing with no late payments, it can still factor into your credit history for several years after closure.

Credit Availability

Closing a HELOC won’t affect your credit utilization for your FICO score. But if you don’t have other revolving lines of credit, it could reduce your credit mix, potentially putting a small dent in your credit score.

Strategies to Minimize Negative Credit Impact

Applying for a HELOC — or opening any new credit account — can initially lower your credit score by a few points. But there are several ways to reduce further damage to your credit score.

Timely Payments

As a reminder, your payment history is the largest component that goes into calculating your credit score. Continually making on-time payments each month can build up your credit. Conversely, paying less than the minimum or missing a monthly payment could harm your credit score.

Note that the interest on monthly payments could be eligible for a tax deduction, like mortgage interest, if used to make substantial improvements on your home. You’ll want to discuss this with your tax advisor.

Managing Credit Utilization

As you manage monthly HELOC payments, keep an eye on the balances for other revolving lines of credit, such as credit cards. Again, keeping a credit utilization ratio below 30% is considered beneficial for your credit score.

Monitoring Credit Reports

Periodically checking your credit report can help detect any instances of fraud or payment errors and inform strategies to improve your credit score. Requesting a credit report is free, and it’s a good idea to do so before applying for a new loan or credit card to understand how lenders will evaluate you as a borrower.

Recommended: Mortgage Rates

The Takeaway

How does a home equity line of credit affect credit scores? Applying for a HELOC involves a hard credit check, which can have some impact on your credit. However, making timely payments, keeping a strong credit mix, and maintaining a low credit utilization ratio can mitigate these effects and strengthen your credit over time.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

Does opening a HELOC significantly lower my credit score?

Opening a HELOC typically involves a hard credit check which can lower your credit score by several points. Whether this is significant will depend on what score you start with — if your credit score is teetering near an important benchmark, such as the 669-670 dividing line between “fair” and “good” credit, it may be an important effect. The hard credit check can stay on your credit report for 12 to 24 months.

How does a HELOC affect my credit utilization ratio?

A HELOC typically does not affect your credit utilization ratio, as it’s secured with a property as collateral versus other revolving lines of credit, such as credit cards, which are unsecured.

Will closing a HELOC improve my credit score?

Closing a HELOC can have a negative effect on your credit score by reducing your credit mix and age of accounts. However, if you made on-time payments over the life of the loan, that will be reflected on your credit history for several years.

Can a HELOC help diversify my credit mix?

Yes, a HELOC can help diversify your credit mix and show lenders that you’re a responsible borrower. If you have installment credit like a mortgage, student loans, or personal loans, taking out a HELOC would provide a form of revolving credit to your credit mix.

How can I use a HELOC responsibly to maintain a good credit score?

Paying off higher-interest debt, such as personal loans or credit cards, and funding home improvements that may make it possible for you to deduct the interest paid on a HELOC, are examples of how to responsibly use a HELOC. Making monthly payments on time and in full is essential to safeguarding your credit score when taking out a HELOC.

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Photo credit: iStock/kate_sept2004

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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What Is Swing Trading?

Short-term price fluctuations in the market are known as swings, and swing trading aims to capitalize on these price movements, whether up or down.

The swings typically occur within a range, from a couple of days to a couple of weeks. Traders may try to capture a part of a larger price trend: for example, if a price dips, but a rebound is expected.

While day traders typically stay in a position only for minutes or hours, swing traders typically invest for a few days or weeks. Swing trading can be profitable, but it’s higher risk, and it’s important to bear in mind the potential costs and tax implications of this strategy.

How Swing Trading Works

Swing trading can be a fairly involved process, and traders employ different types of analysis and tools to try and gauge where the market is heading. But for simplicity’s sake, you may want to think of it as a method to capture short-to-medium term movements in share prices.

Investors are, in effect, trying to capture the “swing” in prices up or down. It avoids some day trading risks, but allows investors to take a more active hand in the markets than a buy-and-hold strategy.

With that in mind, swing trading basically works like this: An investor uses an online brokerage (or a traditional one) to buy a stock, anticipating that its price will appreciate over a three-week period. The stock’s value does go up, and after three weeks, the investor sells their shares, generating a profit.

Conversely, an investor may want to take a short position on a stock, betting that the price will fall.

Either way there are no guarantees, and swing trading can be risky if the stocks the investor holds move in the opposite direction.

Generally, a swing trader uses a mix of technical and fundamental analysis tools to identify short- and mid-term trends in the market. They can go both long and short in market positions, and use stocks, exchange-traded funds (ETFs), and other securities that exhibit pricing volatility.

It is possible for a swing trader to hold a position for longer than a few weeks, though a position held for a month or more may actually be classified as trend trading.

Cost and Tax Implications

A swing trading strategy is somewhere in between a day-trading strategy and trend-trading strategy. They have some methods in common but may also differ in some ways — so it’s important to know exactly which you plan to utilize, especially because these shorter-term strategies have different cost and tax factors to consider.

Frequent trades typically generate higher trading fees than buy-and-hold strategies, as well as higher taxes. Unless you qualify as a full-time trader, your short-term gains can be taxed as income, rather than the more favorable capital gains rate (which kicks in when you hold a security for at least a year).

Recommended: Stock Trading Basics

Day Trading vs Swing Trading

Like day traders, swing traders aim to capture the volatility of the market by capitalizing on the movements of different securities.

Along with day traders and trend traders, swing traders are active investors who tend to analyze volatility charts and price trends to predict what a stock’s price is most likely to do next. This is using technical analysis to research stocks — a process that can seem complicated, but is essentially trying to see if price charts can give clues on future direction.

The goal, then, is to identify patterns with meaning and accurately extrapolate this information for the future. The strategy of a day trader and a swing trader may start to diverge in the attention they pay to a stock’s underlying fundamentals — the overall health of the company behind the stock.

Day traders aren’t particularly interested in whether a company stock is a “good” or “bad” investment — they are simply looking for short-term price volatility. But because swing traders spend more time in the market, they may also consider the general trajectory of a company’s growth.

Pros and Cons of Swing Trading

Pros of Swing Trading

To understand the benefits of swing trading, it helps to understand the benefits of long-term investing — which may actually be the more suitable strategy for some investors.

The idea behind buy-and-hold strategies is quite simply that stock markets tend to move up over long periods of time, or have a positive average annual return. Also, unlike trading, it is not zero-sum, meaning that all participants can potentially profit by simply remaining invested for the maximum amount of time possible.

1. Time and Effort

Further, long-term investing may require less time and effort. Dips in the market can provide the opportunity to buy in, but methodical and regular investing is generally regarded higher than any version of attempting to short-term time the market.

Swing trading exists on the other end of the time-and-effort continuum, although it generally requires much less effort and attention than day trading. Whereas day traders must keep a minute-by-minute watch on the market throughout the trading days, swing trading does not require that the investor’s eyes be glued to the screen.

Nonetheless, swing trading requires a more consistent time commitment — and an awareness of external events that can impact prices — than buy-and-hold strategies.

2. Income

Compared to long-term investing, which comes into play with retirement accounts like a 401(k), traditional IRA or Roth IRA, swing trading may create more opportunity for an investor to generate income.

Most long-term investors intend to keep their money invested — including profits — for as long as possible. Swing traders are using the short-term swings in the market to generate profit that could be used as income, and they tend to be more comfortable with the risks this strategy typically entails.

3. Avoidance of Dips

Finally, it may be possible for swing traders to avoid some downside. Long-term investors remain invested through all market scenarios, which includes downturns or bear markets. Because swing traders are participating in the market only when they see opportunity, it may be possible to avoid the biggest dips.

That said, markets are highly unpredictable, so it’s also possible to get caught in a sudden downturn.

Cons of Swing Trading

Though there is certainly the potential to generate a profit via swing trading, there’s also a substantial risk of losing money — and even going into debt.

1. Expenses & Taxes

It can be quite expensive to swing trade, as noted above. Although brokerage or stock broker commissions won’t be quite as high as they would be for day traders, they can be substantial.

Also, because the gains on swing trades are typically short-term (less than a year), swing investors would likely be taxed at higher capital gains rates.

In order to profit, traders will need to out-earn what they are spending to engage in swing trading strategies. That requires being right more often than not, and doing so at a margin that outpaces any losses.

2. Time Intensive

Swing trading might not be as time-consuming or as stressful as day trading, but it can certainly be both. Many swing traders are researching and trading every day, if not many times a day. What can start as a hobby can easily morph into another job, so keep the time commitment in mind.

3. Requires Expertise

Within the investing community, there is significant debate as to whether the stock market can be timed on any sort of regular or consistent basis.

In the short term, stock prices do not necessarily move on fundamental factors that can be researched. Predicting future price moves is nothing more than just that: trying to predict the future. Short of having a crystal ball, this is supremely difficult, if not impossible, to do, and is best suited to experienced investors.

Swing Trading Example

Here’s a relatively simple example of a swing trade in action.

An investor finds a stock or other security that they think will go up in value in the coming days or weeks. Let’s say they’ve done a fair bit of analysis on the stock that’s led them to conclude that a price increase is likely.

Going Long

The investor opens up a position by purchasing 100 shares of the stock at a price of $10 per share. Obviously, the investor is assuming some risk that the price will go down, not up, and that they could lose money.

But after a week, the stock’s value has gone up $1, and they decide to close their position and sell the 100 shares. They’ve capitalized on the “swing” in value, and turned a $100 profit.

Of course, the trade may not pan out in the way the investor had hoped. For example:

•   The stock could rise by $0.50 instead of $1, which might not offer the investor the profit she or he was looking for.

•   The stock could lose value, and the investor is faced with the choice of selling at a loss, or holding onto the stock to see if it regains its value (which entails more risk exposure).

Going Short

Swing traders can also take advantage of price drops and short a stock that they think is overvalued. They borrow 100 shares of stock from their brokerage and sell the shares for $10 per share for a total of $1,000 (plus any applicable brokerage fees).

If their prediction is correct, and the price falls to $9 per share, the investor can buy back 100 shares at $9 per share for $900, return the borrowed shares, and pocket the leftover $100 as profit ($1,000 – $900 = $100).

If they’re wrong, the investor misses the mark, and the price rises to $11 per share. Now the investor has to buy back 100 shares for $11 per share for a total of $1,100, for a loss of $100 ($1,000 – $1,100 = -$100), not including fees.

Swing Trading Strategies

Each investor will want to research their own preferred swing trading strategy, as there is not one single method. It might help to designate a specific set of rules.

Channel Trading

One such strategy is channel trading. Channel traders assume that each stock is going to trade within a certain range of volatility, called a channel.

In addition to accounting for the ups and downs of short-term volatility, channels tend to move in a general trajectory. Channels can trend in flat, ascending, or descending directions, or a combination of these directions.

When picking stocks for a swing trading strategy using channels, you might buy a stock at the lower range of its price channel, called the support level. This is considered an opportune time to buy.

When a stock is trading at higher prices within the channel, called the resistance level, swing traders tend to believe that it is a good time to sell or short a stock.

MACD

Another method used by swing traders is moving average convergence/divergence, or “MACD.” The MACD indicator looks to identify momentum by subtracting a 26-period exponential moving average from the 12-period exponential moving average, or EMA.

Traders are seeking a shift in acceleration that may indicate that it is time to make a move.

Other Strategies

This is not a complete list of the types of technical analysis that traders may integrate into their strategies.

Additionally, traders may look at fundamental indicators such as SEC filings and special announcements, or watch industry trends, regulation, etc., that may affect the price of a stock. Trading around earnings season may also present an opportunity to capitalize on a swing in value.

Similarly, they may watch the news or reap information from online sources to get a sense of general investor sentiment. Traders can use multiple swing trading methods simultaneously or independently from one another.

Swing Trading vs Day Trading

Traders or investors may be weighing whether they should learn swing trading versus day trading. Although the two may have some similarities, day trading is much more fast-paced, with trades occurring within minutes or hours to take advantage of very fast movements in the market.

Swing trading, conversely, gives investors a bit more time to take everything in, think about their next moves, and make a decision. It’s a middle ground between day trading and a longer-term investing strategy. It allows investors to utilize some active investing strategies, but doesn’t require them to monitor the markets minute by minute to make sure they don’t lose money.

Swing Trading vs Long-Term Investing

Long-term investing tends to be a lower risk strategy in general. Investors are basically betting that the market will trend higher over the long term, which is typically true, barring any large-scale downturns. But this strategy doesn’t give investors the opportunity to really trade based on market fluctuations.

Swing trading does, albeit not as much as day trading. If you want to get a taste for trading, and put some analysis tools and different strategies to work, then it may be worth it to learn swing trading.

Is Swing Trading Right for You?

Whether swing trading is a smart investing strategy for any individual will come down to the individual’s goals and preferences. It’s good to think about a few key things: How much you’re willing to risk by investing, how much time you have to invest, and how much risk you’re actually able to handle on a psychological or emotional level — i.e., your risk tolerance.

If your risk tolerance is relatively low, swing trading may not be right for you, and you may want to stick with a longer-term strategy. Similarly, if you don’t have much to invest, you may be better off buying and holding, effectively lowering how much you’re putting at risk.

The Takeaway

Swing traders invest for days or weeks, and then exit their positions in an effort to generate a quick profit from a security’s short-term price movements. That differentiates them from day traders or long-term investors, who may be working on different timelines to likewise reap market rewards.

There are also different methods and strategies that swing traders can use. There is no one surefire method, but it might be best to find a strategy and stick with it if they want to give swing trading an honest try. Be aware, though, that it carries some serious risks — like all stock trading.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

Is swing trading actually profitable?

Swing trading can be profitable, but there is no guarantee that it will be. Like day trading or any other type of investing, swing trading involves risk, though it can generate a profit for some traders.

Is swing trading good for beginners?

Many financial professionals would likely steer beginning investors to a buy-and-hold strategy, given the risks associated with swing or day trading. However, investors looking to feel out day trading may opt for swing trading first, as they’ll likely use similar tools or strategies, albeit at a slower pace.

How much do swing traders make?

It’s possible that the average swing trader doesn’t make any money at all, and instead, loses money. It depends on their skill level, experience, market conditions, and a bit of luck.

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SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN-Q125-045

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