Home Equity Loan
A home equity loan gives you one lump sum upfront, secured by your home—often with a fixed rate and predictable monthly payments.
A home equity loan is a second mortgage: you borrow a set amount against the equity you’ve built in your home and receive it in one disbursement. You repay over a fixed term (often 5–30 years) with fixed monthly payments. Because it’s secured by your home, rates are typically lower than unsecured debt like credit cards or personal loans. Many homeowners use it for planned projects—renovations, debt consolidation, or other goals—where they know the amount they need and prefer certainty over flexibility.
Why It Matters
Your home’s equity reflects the value you’ve built—and a home equity loan lets you put that value to work in a planned way. You get one amount upfront, one fixed rate, and one predictable payment. That can suit renovations, debt consolidation, or other goals where you know the number and want certainty. In commercial real estate, some investors never sell and instead take loans against properties; the same idea applies at home: use your equity as a tool when the plan is clear.
How a Home Equity Loan Works
You apply for a set loan amount based on your equity (home value minus what you owe). After approval, you receive the full amount in one lump sum. You repay over a fixed term with fixed monthly payments—principal and interest. Rates are usually fixed, so your payment doesn’t change with market rates. Terms often range from 5 to 30 years.
Lenders typically allow you to borrow up to 80–90% of your home’s value minus your first mortgage. Your credit, income, and debt-to-income ratio affect your rate and approval. Interest may be tax-deductible when the loan is used to buy, build, or substantially improve the home securing the loan—consult a tax professional.
When a Home Equity Loan Makes Sense
- You know the amount you need and prefer one lump sum and one fixed payment.
- You have a planned use—renovations, debt consolidation, education, or another goal.
- You want rate and payment certainty instead of a variable line you draw from over time.
If you need flexibility—ongoing or uncertain costs—a home equity line of credit (HELOC) may fit better. Both use your home as collateral, so only borrow what you can repay.
Home Equity Loan vs HELOC
A home equity loan gives you one amount upfront with a fixed rate and fixed payments—good for planned, known expenses. A HELOC is a line you draw from over time with variable rates—good when you’re not sure how much you’ll need or when. Compare home equity loans and HELOC rates to see what fits.
Home Equity Loan vs Other Loans
A home equity loan is one way to borrow a lump sum. The table below compares it to other common loan types. Rates and amounts are representative; actual terms depend on lender, credit score, income, and (for home equity) equity and combined loan-to-value. "Good" credit is roughly 720+; "fair" is roughly 660–719.
| Product | Type | Typical APR / rate | Typical amount | Credit context |
|---|---|---|---|---|
| Home equity loan | Secured (home) | ~7–9% fixed typical | Lump sum; often $25k–$150k+ | Best rates often 720+; many lenders 660+ |
| Personal loan | Unsecured | ~10–12% (good credit) to ~18–22% (fair) | ~$10,000–$50,000 typical | Good 720+: single digits possible; fair: mid-teens+ |
| Credit card (if used as loan) | Unsecured | ~18–27% APR (varies by score) | Limit varies; avg balance ~$6k | Excellent 720+: ~17–21%; fair: ~24–27% |
| HELOC (lump-sum use) | Secured (home) | ~7–9% variable (prime + spread) | Draw up to limit; ~$50k–$100k typical | Best rates often 720+; many lenders 660+ |
Home equity loans are secured by your home, so rates are often lower than unsecured personal loans or credit cards—but your home is collateral. If you need flexibility to draw over time instead of one lump sum, a HELOC may fit better.
Quick Takeaway
A home equity loan is a lump-sum loan secured by your home, with fixed rate and fixed payments. It suits planned projects and goals where you know the amount and want certainty. Compare home equity loan rates and read about HELOCs if you prefer a line of credit.