One-time lump sum
A home equity loan delivers a single payout at closing. You repay principal and interest on a set schedule, often at a fixed rate. It is sometimes called a second mortgage because it sits behind your first loan.
Predictable payments help with budgeting for a known project cost. You pay interest on the full amount from day one, even if you spend slowly.
Equity and combined LTV
Lenders estimate your equity using a current valuation minus existing mortgage balances. Combined loan-to-value limits apply across first mortgage and home equity debt.
Strong credit and stable income improve approval odds. Documentation resembles a purchase mortgage: income proof, assets, and property details.
Compared with a HELOC
Choose a home equity loan when you know the total cost upfront and want fixed payments. Choose a HELOC when costs are uncertain or spread over time.
Some borrowers use a loan to lock in rate on a renovation while keeping a small HELOC for contingencies. Make sure total debt stays within comfortable limits.
Risks to weigh
Default on a home equity loan can lead to foreclosure, same as the first mortgage. Do not borrow for consumption without a repayment plan.
Property values can fall. Heavy borrowing near peak prices leaves less cushion if you need to sell. Stress test payments at higher rates if you choose variable products elsewhere in your plan.
FAQs
How long are home equity loan terms?
Terms often range from five to twenty years, depending on lender and amount. Shorter terms cost less interest but higher monthly payments.
Can I get a home equity loan with bad credit?
Options narrow and rates rise with weaker credit. Some lenders focus on lower combined LTV instead. A broker can show niche products if available.
Does a home equity loan replace my mortgage?
No. It is an additional lien unless you refinance everything into one new first mortgage. Count all liens when you calculate equity.
General information only. Not financial, tax, insurance or credit advice.