Keep Your Second Lien or Pay It Off?

HELOC (Home Equity Line of Credit)

A revolving credit line secured by your home. During the draw period (typically 10 years), you make interest-only payments and can borrow up to your limit. After the draw period ends, it converts to a repayment period — the balance becomes fully amortizing over 15-20 years, and payments jump significantly. The rate is variable (tied to prime), meaning your payment changes as rates move. At the end of the term, any remaining balance is due as a balloon payment.

Fixed-Rate Second Mortgage

A one-time lump sum with a fixed rate and fixed payment. Simpler than a HELOC — no draw period, no rate changes, no balloon. But the rate is typically higher than a first mortgage because the lender is in second position.

Why Paying It Off Might Make Sense

• Eliminates the variable rate risk (HELOCs can get very expensive when rates rise)
• Avoids the balloon payment surprise when the HELOC draw period ends
• Removes the subordinate financing pricing penalty on your first mortgage
• Simplifies to one payment instead of two
• No subordination fee (~$200) and no waiting for the second lien holder to approve

Why Keeping It Might Make Sense

• Cash-out refi means a larger loan amount and higher first mortgage payment
• Cash-out has its own pricing adjustment (potentially worse than the sub financing hit)
• If your HELOC balance is small, the pricing impact may not justify closing costs
• You keep access to the credit line for future use
• Cash-out refi above 80% LTV is restricted or unavailable for conventional loans