Home equity loan
Updated
What is home equity loan?
A home equity loan is a fixed-rate second mortgage drawn in full at closing and repaid on a fixed schedule. Your first mortgage stays exactly as it is.
Home equity loan questions
- What does home equity mean?
- What the home is worth less what you still owe on it. A $450,000 home with a $320,000 balance carries $130,000 of equity.
- What is a home equity loan?
- A fixed-rate second mortgage paid out as a single lump sum and repaid on a set schedule. It sits behind your first mortgage, which is left completely untouched.
- Home equity loan or HELOC?
- A home equity loan gives you all the money at once at a fixed rate, so the payment is known from the start. A HELOC lets you draw as you need at a variable rate, so it is cheaper if you borrow less than you expected and riskier if rates rise.
What it means in practice
Often called a second mortgage, it gives you a lump sum with a fixed rate, a fixed payment, and a fixed payoff date, which gives it the predictability a HELOC lacks.
Like a HELOC it preserves your existing first mortgage rate, which matters most when that rate is below current market pricing.
Rates on home equity loans are normally higher than first-mortgage rates because the lender is in second position and gets repaid after the first lien in a foreclosure.