How It Works
A home equity loan, sometimes called a second mortgage, allows you to borrow a lump sum of money using your home equity as collateral. Unlike a HELOC, you receive the full loan amount upfront and repay it over a fixed term with a fixed interest rate, providing predictable monthly payments throughout the life of the loan.
Home equity loans are best suited for one-time expenses where you know exactly how much you need, such as a major home renovation, debt consolidation, or a large purchase. Terms typically range from 5 to 30 years. Because the loan is secured by your home, rates are generally lower than unsecured personal loans or credit cards.
Lenders typically allow you to borrow up to 80-85% of your home's value minus your existing mortgage balance. The application process is similar to a first mortgage, requiring income verification, credit checks, and a home appraisal. Interest may be tax-deductible if the funds are used for home improvements.
Who Is This For?
- Homeowners who need a specific lump sum for a large expense
- Those who prefer predictable fixed monthly payments
- Borrowers looking to consolidate high-interest debt
- Homeowners funding major renovations or home improvements
- Those who want a lower rate than unsecured loan options
Pros & Cons
Frequently Asked Questions
What's the difference between a HELOC and a home equity loan?+
A home equity loan is a lump-sum loan at a fixed rate with predictable monthly payments. A HELOC is a revolving line of credit with variable rates where you borrow only what you need. Use a home equity loan for one-time expenses, a HELOC for ongoing needs.
What rates do home equity loans have today?+
Home equity loan rates are typically a bit higher than first-mortgage rates because they're in second position. Most fall in the 7.5%–9.5% range for well-qualified borrowers in current markets. Rate depends on credit, LTV, and term.
How fast can I close on a home equity loan?+
Most home equity loans close in 2–4 weeks, faster than purchase mortgages. The federal three-day right of rescission delays funding for primary residences, but the underwriting is otherwise streamlined.
What can I use a home equity loan for?+
Common uses include major home renovations, debt consolidation, college tuition, medical expenses, business capital, or a down payment on a second property. Lenders usually don't restrict use, though you should weigh whether the interest is tax-deductible based on use.