home equity loan

A home equity loan is an additional loan above and beyond a mortgage that a homeowner can take out to generate additional cash, using the equity in the home as collateral. Homeowners typically take out a home equity loan to pay for large expenses, such as major home repairs or improvements, medical bills, or educational costs.

A home equity loan can be taken either as a fixed lump-sum amount with a fixed interest rate and term of repayment, or as a revolving line of credit with a variable interest rate (called a home equity line of credit or HELOC) that the homeowner can draw on as needed.

A HELOC will have a set period of time (called the draw period, which is usually 5 to 10 years) during which funds can be borrowed up to a specified maximum amount, followed by a set repayment period (usually 10 to 20 years) during which the amount borrowed plus interest must be repaid in equal monthly installments.

A home equity loan is often referred to as a second mortgage.

“A home equity loan is a second mortgage, with a separate payment, that allows you to borrow against the equity in your home.”
—”Kitchen Remodel Financing: 7 Steps For Everything You Need To Know” Rocket Loans. Retrieved March 15, 2020.

“[O]nce you close on your home equity loan, you’ll receive a lump sum payment from your lender.”
—”Kitchen Remodel Financing: 7 Steps For Everything You Need To Know” Rocket Loans. Retrieved March 15, 2020.

“If you want to borrow a large sum of money (more than the typical personal loan lending limit of $45,000), it could be a better idea to go the home equity loan route, especially if you have significant home equity.”
—”Home Equity Loan Vs. Personal Loan: Which Is Better For You?” Rocket Loans. Retrieved March 15, 2020.

• home equity
• equity
• HELOC
• collateral
• interest rate
• variable-rate
• second mortgage