When you’re new to the home loan process, it’s easy to get tangled up in terminology. One of the abbreviations you’ll run across when looking at financing options is “HELOC,” which stands for home equity line of credit. It’s important to understand how a HELOC and a mortgage used to buy a home (also called a first mortgage or senior mortgage) differ.
Is a HELOC a mortgage? This is one of those “yes, but…” situations. So let’s take a closer look to ensure you get the right type of mortgage loan for your needs.
Table of Contents
- Key Points
- • The loan used to purchase a home is usually called a mortgage (or first mortgage), while a HELOC (home equity line of credit) is a form of revolving credit, similar to a credit card, that homeowners can use to obtain funds.
- • Both types of borrowing are technically considered mortgages because they are secured by your home.
- • Interest rates on a first mortgage are generally lower than those on a HELOC.
- • A mortgage is repaid with scheduled monthly payments that start right away, whereas a HELOC has a “draw phase” (when borrowers pay interest only) followed by a “repayment phase.”
- • Qualifying for both depends on factors like credit score and debts, but a key HELOC requirement is having at least 15% home equity.
What Is a Mortgage?
Most people call the loan a borrower uses to purchase a home a mortgage, while other types of loans secured by your home are given different names. But technically a mortgage is any loan that is secured by a home.
In the case of a conventional mortgage used to buy a home, a mortgage lender provides a lump-sum loan and the homebuyer uses the funds — often alongside a cash down payment — to purchase the home. The buyer then repays the home loan in monthly installments over anywhere from 10 to 30 years. If the homeowner fails to make these payments, the lender can take over the home through the foreclosure process.
What Is a HELOC?
A HELOC is another type of mortgage that’s secured by the home. But a HELOC isn’t usually used during the purchase of a primary residence. A more common scenario: Once a homeowner has built up enough equity in their home through monthly mortgage payments, they can borrow against their home equity to obtain funds to use for remodeling, medical expenses, or any other purpose. Equity is the market value of your home minus the amount you still owe on your first mortgage.
The HELOC is one way to borrow against home equity. You’ve probably heard of a home equity loan; that’s another common way to borrow based on equity.
Is a HELOC Considered a Mortgage?
If you’re following along and beginning to grasp what a HELOC is, you know by now that, technically, a HELOC is a mortgage. If you are still paying off the loan you used to purchase your home, a HELOC would be a second mortgage. First and second positions become important only in the event of a foreclosure process. In that instance, when the home securing the loan is sold, the first mortgage is paid off before any remaining funds go to repay the second mortgage.
Recommended: Second Mortgage vs. Home Equity Loan
Key Differences Between a HELOC and a Mortgage
There’s more to differentiating between a mortgage and a HELOC than simply the foreclosure-payoff pecking order. Here’s a rundown of some important distinctions between a HELOC vs. mortgage:
HELOC Rates vs Mortgage Rates
Interest rates on a primary mortgage are usually lower than those for a HELOC. For example, in the spring of 2026, the average 30-year fixed mortgage interest rate was 6.37%. The average HELOC rate was 7.02%.
Another key difference: When you take out a mortgage to purchase a home, you can choose a fixed mortgage rate or a variable rate. (The latter fluctuates, following changes in the 10-year Treasury note.) A HELOC, on the other hand, usually has a variable interest rate. If you sign on to a HELOC, you’ll be given documents explaining how often your interest rate can change and by how much.
How Funds Are Accessed and Repaid
One big difference between a HELOC and a mortgage is how you receive and repay the funds that you borrow. Let’s review them in chronological order: In the case of the mortgage that you use to purchase your home, your lender will pay the seller the borrowed amount (minus any costs such as mortgage points) at the closing. Soon afterward, you’ll begin making monthly mortgage payments to repay what you borrowed, plus interest.
With a HELOC, you are opening a line of credit. You can borrow funds as needed, up to whatever credit ceiling your lender permits. HELOC lenders provide checks or a card that you can use to draw funds from your line of credit. A HELOC has two phases: a draw phase and a repayment phase.
During the draw phase, you borrow, but you usually won’t be required to repay what you borrow (though you may do so if you wish). Instead, you’ll just need to pay interest on the borrowed amount. When the draw period ends, often after 10 years, you begin to make regular payments to repay whatever amount you borrowed. You’ll keep making these payments for anywhere from 10 to 20 years, depending on your HELOC agreement.
Recommended: How to Get Equity Out of Your Home
How to Qualify for a HELOC vs a Mortgage
The approval process for a HELOC and a mortgage are similar. In both cases, the rate you obtain will depend in large part on your credit score, income, and debts. Here’s how they stack up:
Conventional Mortgage Requirements
For a conventional mortgage (a loan not backed by a government agency), a borrower typically needs to have a minimum credit score of 600 and a debt-to-income (DTI) ratio of no more than 43%, although below 36% is optimal. Your DTI ratio is the total of your monthly debt payments (student loan, car loan, etc.) divided by your gross monthly income.
Your down payment amount will also factor into the lender’s calculations of how large a loan it might offer you and at what interest rate. Credit score, DTI ratio, and down payment requirements may be slightly different for government-backed loans. If you’d like to test the waters and learn how much a lender might allow you to borrow before you find a home to purchase, you can go through a process called mortgage preapproval.
Once you’ve chosen a property and had your offer accepted, the mortgage lender will require an appraisal of the property to ensure that the purchase price doesn’t exceed the home’s value.
HELOC Requirements
When it comes to how to get a HELOC, an appraisal is usually also required. Another key requirement is having a minimum of 15% equity in your home. The appraisal will determine the home’s value. The lender will subtract any current mortgage balance to arrive at the value of your equity.
DTI ratio requirements for a HELOC are a bit less rigorous than they are for a first mortgage: Lenders may allow a DTI ratio up to 45%, with some going as high as 50%. The minimum credit score starts at 640, though some lenders require 680.
With either a mortgage or a HELOC, you’ll need to file an application and submit supporting materials, such as tax documents. Having a reliable source of income is an important consideration for both borrowing methods.
Which Option Is Right for You?
Determining whether you need a mortgage or a HELOC is pretty straightforward. It comes down to whether you’re buying a home or need to borrow money based on the equity you’ve built up in a home that you already own. Once you choose a path, you will still have more decisions to make. Homebuyers will need to look at loan options and consider fixed-rate vs. adjustable-rate mortgages. Those borrowing based on their home equity will want to consider a HELOC vs. a home equity loan.
The Takeaway
Is a home equity line of credit considered a mortgage? Yes, it technically is. But it’s different from the mortgage used to purchase a home. Both a HELOC and a loan obtained for a home purchase use your home as collateral. But one is used to purchase the home while the HELOC is a credit line that makes funds available for any use the homeowner may wish.
The approval process for both is similar. One common factor? To get the best interest rate available to you, it pays to shop around and request quotes from multiple lenders.
SoFi now offers flexible HELOC options to turn your home equity into cash. Access up to 85% of your home equity, or $350,000, to finance home improvements or consolidate debt. Competitive interest rates and repayment terms up to 20 years could result in lower monthly payments versus other loans. And the online application process is quick and convenient.
Unlock your home’s value with a home equity line of credit from SoFi.
FAQ
Is a HELOC a mortgage?
A HELOC is, technically, a mortgage because it is a form of borrowing secured by your home. But HELOC stands for “home equity line of credit,” and in practice, it may not seem like a mortgage. With a line of credit, you can borrow money in increments versus as a lump sum. And you can use the borrowed funds for any purpose (whereas with a mortgage, also called a first mortgage, the funds are used to purchase the home).
Is a home equity line of credit considered a mortgage on your taxes?
A HELOC is considered a mortgage when it comes time to file your taxes, because it is a loan secured by your home. However, whether you may be able to deduct the interest you pay on a HELOC will depend on how you use the money you borrow from your line of credit. If the funds are used to buy, build, or substantially improve your home, then the interest you pay may be deductible. You’ll want to consult a tax advisor on the finer points.
Are HELOC rates higher than mortgage rates?
As you look at HELOC rates vs. mortgage rates, you’ll see that interest rates on home equity lines of credit are typically somewhat higher than those on mortgages used to purchase a home. However, HELOC interest rates are often lower than rates on other nonmortgage borrowing methods, such as personal loans and home improvement loans. HELOCs are also more likely than mortgages used for a home purchase to have variable interest rates, meaning the rate can adjust periodically in response to market conditions.
What are the risks of choosing a HELOC over a mortgage?
A home equity line of credit (HELOC) is a type of mortgage. As a result, the chief risk associated with a HELOC is the same one associated with a mortgage used to purchase a home: In both cases, if you fail to keep up with the payments, you could find yourself in foreclosure and lose your home.
Can you have both a HELOC and a mortgage at the same time?
It’s quite common for homeowners to have both a mortgage (used to purchase their home) and a home equity line of credit (HELOC) simultaneously. One typical scenario: After using a mortgage to buy the home, the owners make mortgage payments consistently over a number of years. Then they decide it’s time to renovate or build an addition. They take out a HELOC based on the equity built up in the home and draw funds from it to pay for the renovations. All the while, they keep making their monthly mortgage payments.
Photo credit: iStock/Elena Mishina
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