Home Equity Loan
What Is a Home Equity Loan?
A home equity loan is a second mortgage that allows homeowners to borrow against the equity in their property.
It provides a lump sum with fixed interest and fixed repayment terms.
Equity equals the difference between the home’s market value and remaining mortgage balance.
Why It Matters in a Mortgage
Home equity loans can:
- Fund renovations
- Consolidate debt
- Cover major expenses
Because the loan is secured by the home, failure to repay may result in foreclosure.
Lenders evaluate combined loan-to-value (CLTV) ratios during approval.
How It Works
- Home value: $400,000
- Primary mortgage: $250,000
Available equity portion may be borrowed.
Funds are disbursed in one lump sum.
Home Equity Loan vs. HELOC
Home Equity Loan → Lump sum, fixed rate
HELOC → Revolving credit, variable rate
Structure and flexibility differ.
FAQs About Home Equity Loans
Is interest fixed?
Typically yes, though terms vary by lender.
Are closing costs required?
Some lenders charge fees similar to mortgage closing costs.
Can the funds be used for anything?
Use is flexible, but risk remains tied to the home.
Related Terms
