Home Equity Loans

A home equity loan—also known as an equity loan, home equity installment loan, or second mortgage—is a type of consumer debt. Home equity loans allow homeowners to borrow against the equity in their homes. The loan amount is based on the difference between the home’s current market value and the homeowner's mortgage balance due. Home equity loans tend to be fixed-rate, while the typical alternative, home equity line of credit (HELOC), generally have variable rates.A home equity loan can be a good way to convert the equity you've built up in your home into cash, especially if you invest that cash in home renovations that increase the value of your home

Home Equity Loans vs. HELOCs

Home equity loans provide a single lump-sum payment to the borrower, which is repaid over a set period of time (generally five to 15 years) at an agreed-upon interest rate. The payment and interest rate remain the same over the lifetime of the loan. The loan must be repaid in full if the home on which it is based is sold.

A HELOC is a revolving line of credit, much like a credit card, that you can draw on as needed, pay back, and then draw on again, for a term determined by the lender. The draw period (five to 10 years) is followed by a repayment period when draws are no longer allowed (10 to 20 years). HELOCs typically have a variable interest rate, but some lenders offer HELOC fixed-rate options.

Home Equity Loan Requirements

Each lender has its own requirements, but to get approved for a home equity loan, most borrowers will generally need:

Equity in their home greater than 20% of their home’s value
Verifiable income history for two or more years
A credit score greater than 600

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