Home Equity Loans

A home equity loan lets you borrow a fixed amount against the value of your home and pay it back in regular installments over a set number of years. You get the money once, as a lump sum, and the payment is usually the same every month.

What a home equity loan is

Your equity is the difference between what your home is worth and what you still owe on it. A home equity loan turns part of that equity into cash, and your home is the collateral.

The Consumer Financial Protection Bureau describes the basic split this way: a home equity loan gives you the funds “in a lump sum payment,” while a home equity line of credit lets you “borrow or draw money multiple times from an available maximum amount.”

You can work out roughly how much equity you have, and what borrowing a given amount would do to your loan-to-value, with our home equity and CLTV calculator. It runs entirely in your browser.

How the second lien works

If you already have a mortgage, a home equity loan usually sits behind it. That is what “second lien” or “second mortgage” means, and the word second is about the order of repayment rather than the order you took the loans out.

The CFPB puts it plainly: if you can no longer pay and the home is sold to clear the debts, the second loan “is paid off second.” If there is not enough left after the first mortgage is settled, the second lender “may not get the full amount it is owed.”

That extra risk to the lender is why second liens generally carry higher interest rates than first mortgages. It is also why lenders care so much about how much total borrowing is secured against the property, not just about the new loan on its own.

Fixed lump sum, or a line you draw on

The two products solve different problems.

• A home equity loan pays out once. You know the amount, the rate and the payoff date from the start. It suits a cost you can price up front, like a roof replacement with a signed quote.
• A HELOC gives you a credit limit you can draw from, repay and draw again during a draw period. It suits spending that arrives in stages, or a reserve you may not use in full.

Rates behave differently too. The CFPB notes that home equity loans “may have a fixed or adjustable interest rate,” while HELOCs “usually have adjustable interest rates” with payments that “vary depending on the outstanding balance.”

There is also a timing difference that catches people out. A HELOC payment can rise sharply when the draw period ends and repayment of the principal begins. A home equity loan has no such step, because you are paying down principal from the first month. If you are weighing a line of credit, our HELOC payment shock calculator shows how large that step can be. Our guide to HELOCs covers the draw and repayment phases in more detail.

What the monthly payment looks like

A fixed rate home equity loan is amortizing, which means each payment covers the interest for that month and chips away at the balance. Early payments are mostly interest and later ones are mostly principal, and the balance reaches zero on the final payment.

Two practical consequences. A longer term lowers the monthly payment and raises the total interest you pay. And because the payment includes principal from day one, a home equity loan usually costs more per month at the outset than an interest-only draw on a HELOC of the same size.

The loan is normally repaid in full when you sell. The CFPB notes that with a home equity loan you “typically borrow all the money up front and then repay it in regular monthly payments,” and that repayment is often required when the home is sold.

What lenders look at

Underwriting varies by lender, and the specific limits are set by each one rather than by any general rule. Most look at some combination of the following.

• Equity, and combined loan-to-value. Lenders add the new loan to any existing mortgage and compare the total against the value of the home. That combined figure, CLTV, is usually the binding constraint.
• Credit history. A credit score and the record behind it.
• Income and employment. Evidence that the payment is affordable and likely to stay that way.
• Debt-to-income ratio. The CFPB defines this as “all your monthly debt payments divided by your gross monthly income,” and notes that “different loan products and lenders will have different DTI limits.”
• The property itself. An appraisal or an automated valuation, plus rules about property type and whether you live there.

We do not publish a typical figure for any of these, because a typical figure is not a lender’s figure. Where a lender we cover has published its own limits, they are on that lender’s page with the source and the date we read it. See our lender profiles, or compare what lenders publish side by side.

What people use them for

Common uses include home improvements, consolidating higher rate debt, education costs, medical bills and large one-off expenses. The predictable payment is the appeal.

One caution the CFPB makes explicitly about consolidation: moving debt onto your home does not make it go away. It changes an unsecured debt into one secured against the place you live.

The risks worth taking seriously

The central risk is simple and it applies to every product on this site. The CFPB states it directly: “if you cannot repay a home equity loan or home equity line of credit, you could potentially lose your home because you are using the equity in your home as collateral.” The Federal Trade Commission says the same thing about missed payments: “if you don’t repay the loan as agreed, your lender can foreclose on your home.”

Some other things worth weighing before you sign:

• Closing costs and fees can be meaningful. The FTC notes lenders may charge an application fee, an annual fee or a transaction fee, on top of third party costs such as appraisal and credit report fees.
• A falling market can leave you owing more than the home is worth, which limits your options if you need to sell or refinance.
• Borrowing to cover a shortfall in monthly income tends to postpone a problem rather than fix it. The CFPB suggests talking to a housing counselor if you are already struggling with mortgage payments.

Three business days to change your mind

For a loan secured against your main home, federal law gives you a right to cancel within three business days of closing, “for any reason and without penalty,” in the FTC’s words. The cancellation has to be in writing. You cannot cancel by phone, and the right does not apply to a vacation home or to some refinances.

When to compare it against a HELOC or a cash-out refinance

It is worth running all three when the amount is large, when you are not certain of the total cost, or when your current mortgage rate is low.

• Against a HELOC when the spending will arrive in stages, or when you want a reserve you may never fully draw. The trade is certainty against flexibility.
• Against a cash-out refinance when you would be replacing your whole mortgage. As the CFPB puts it, you “replace your existing mortgage with a bigger mortgage and take the difference in cash,” and pay closing costs on the larger amount. It says to consider the interest rate carefully, “especially if it is higher than the interest rate on your current mortgage,” and that a cash-out refinance “may be more or less expensive than a HELOC” depending on the terms.

If your first mortgage is at a rate you would not get again today, refinancing the whole balance to release equity can be expensive in a way the headline number hides. A second lien leaves the first mortgage alone.

Our comparison tool shows what each lender we cover has actually published, and says so plainly where a lender publishes nothing.

Sources

• Consumer Financial Protection Bureau, What is the difference between a Home Equity Loan and a Home Equity Line of Credit (HELOC)?
• Consumer Financial Protection Bureau, What is a second mortgage loan or “junior-lien”?
• Consumer Financial Protection Bureau, What other types of loans are similar to a HELOC?
• Consumer Financial Protection Bureau, What is a debt-to-income ratio?
• Federal Trade Commission, Home Equity Loans and Home Equity Lines of Credit

Sources checked on August 22, 2026.

This page is general information, not financial advice. It is not an offer of credit and we are not a lender. Borrowing secured against your home puts your home at risk if you cannot keep up repayments. Our site disclaimer sets out the limits of what we publish.