How a home equity loan works
A home equity loan, sometimes called a HELOAN, lets you borrow against the equity in your home, the difference between what your home is worth and what you owe on it. You receive the full amount in one lump sum at closing and repay it in regular payments over a set term.
Most home equity loans have a fixed rate, so you know your principal-and-interest payment from the start. If you already have a mortgage, the home equity loan is a second mortgage that you pay in addition to your first one.
Common uses
- Home improvements with a known cost, such as a new roof, kitchen or addition.
- Paying off higher-interest debt with one fixed payment.
- Major one-time expenses, such as tuition or medical bills.
Things to consider
- Your home is the collateral. If you can’t repay as agreed, you could lose your home.
- You’ll have two mortgage payments. Make sure the second payment fits comfortably in your budget.
- Closing costs apply. Compare the full cost across lenders, not just the rate.
- Interest starts on the full amount. Because you borrow everything at once, you pay interest on the whole loan from the start. If you’ll need money in stages, a HELOC may fit better.
- Selling your home means paying off both your first mortgage and the home equity loan.
Not sure whether a home equity loan, a HELOC or a cash-out refinance fits best? Talk to a loan officer and we’ll compare them side by side.