Home Equity Loan
A home equity loan lets you borrow a lump sum of money against the equity in your home, repaid over a fixed term at a fixed interest rate. It's often called a 'second mortgage' because it's in addition to your primary mortgage. Home equity loans are commonly used for large expenses like home renovations, debt consolidation, or education costs.
Like a HELOC, a home equity loan is secured by your home and typically allows borrowing up to 80–85% of your home's value minus your mortgage balance. The key difference is that you receive the full amount upfront and make fixed equal payments for the loan term (typically 5–30 years). This predictability makes home equity loans better for one-time known expenses versus ongoing needs.
Interest rates on home equity loans are higher than first mortgages but lower than credit cards or personal loans. On a $50,000 home equity loan at 8.5% for 10 years, your monthly payment is approximately $620 — far lower than carrying that balance on credit cards at 20%+ APR. This makes them a popular debt consolidation tool for homeowners with significant equity.
The risk is clear: you're converting unsecured debt (credit cards) into debt secured by your home. Missing home equity loan payments puts your home at risk of foreclosure. Most financial advisors recommend this strategy only with a realistic plan to avoid running up new credit card debt after consolidation.
Key Takeaway
A home equity loan lets you borrow a lump sum of money against the equity in your home, repaid over a fixed term at a fixed interest rate. It's often called a 'second mortgage' because it's in addition to your primary mortgage. Home equity loans are commonly used for large expenses like home renovations, debt consolidation, or education costs.
Related Terms
Frequently Asked Questions
A home equity loan gives you a fixed lump sum at a fixed rate. A HELOC is a revolving credit line with a variable rate — more flexible but less predictable.
It may be if the funds are used to buy, build, or substantially improve the home. Interest used for other purposes (debt consolidation, personal expenses) is generally not deductible after the 2017 tax law changes.
Typically 2–6 weeks from application to funding, including appraisal, underwriting, and a required 3-day rescission period after closing.
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