What Is a Home Equity Loan?
A home equity loan lets homeowners borrow against their home’s equity, using the property as collateral.
How Does a Home Equity Loan Work?
- 🏠 You receive a lump sum of money based on your home equity.
- 📆 Fixed repayment term with predictable monthly payments.
- 💰 Loan amounts depend on your home`s value and mortgage balance.
Home Equity Loan vs. HELOC
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Payout | Lump sum | Revolving credit line |
| Interest Rate | Fixed | Variable |
| Repayment | Fixed monthly payments | Borrow as needed, flexible repayment |
How Much Can You Borrow?
Lenders typically allow homeowners to borrow 80-85% of their home’s value, minus the existing mortgage balance.
What Can a Home Equity Loan Be Used For?
- 🏡 Home renovations & repairs
- 🎓 Education expenses
- 💳 Debt consolidation
- 🚗 Major purchases or emergency expenses
Pros & Cons of a Home Equity Loan
| Pros | Cons |
|---|---|
| ✔ Lower interest rates than personal loans | ❌ Uses your home as collateral |
| ✔ Fixed interest rate & predictable payments | ❌ Must have enough home equity |
| ✔ Can be used for large expenses | ❌ Risk of foreclosure if payments are missed |
Is a Home Equity Loan Right for You?
If you need a large, one-time sum with fixed payments, a home equity loan can be a good option—but only if you’re financially stable.
“Home equity loans offer access to cash, but it’s important to borrow responsibly.”
— Sarah Thompson, Mortgage Advisor
Frequently Asked Questions
Is a home equity loan the same as a second mortgage?
Yes, a home equity loan is a type of second mortgage.
Does a home equity loan affect my credit score?
Yes, a new loan may lower your score temporarily but improves it with on-time payments.
Can I get a home equity loan with bad credit?
It’s possible, but expect higher interest rates and stricter approval criteria.