{"id":369312,"date":"2016-04-04T10:47:20","date_gmt":"2016-04-04T15:47:20","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/realestate\/mortgages-equity-loans\/home-equity-loans.html"},"modified":"2025-08-28T12:43:43","modified_gmt":"2025-08-28T17:43:43","slug":"home-equity-loans","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/realestate\/mortgages-equity-loans\/home-equity-loans.html","title":{"rendered":"Home Equity Loans"},"content":{"rendered":"\n
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Home Equity Loans<\/h1>\n\n
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\n By Balrina Ahluwalia, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last reviewed\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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A home equity loan<\/span> is a type of second mortgage<\/span> that allows homeowners<\/span> to borrow money by using their home’s equity as collateral. Homeowners<\/span> receive a lump sum<\/span> of cash upfront<\/span>, which is repaid over time with fixed <\/span>monthly payments<\/span>. This loan places a second lien<\/span> on the property, meaning the lender<\/span> has a legal claim to the home until the loan is fully repaid.<\/p>\n\n <\/div>\n\n\n\n

The American dream of home ownership can be expensive. A mortgage often ties up nearly all your income, leaving little left over for anything else. You may find yourself relying on credit cards or trying to figure out how you\u2019ll cover the next big expense. Because this is not at all uncommon, several tools are available to help homeowners obtain cash when they need it. One such tool is the home equity loan. This and other types of second mortgages<\/a> have helped millions of homeowners finance renovations, consolidate debt, and fund unexpected expenses.<\/p>\n

If you’re wondering whether one of these options may be right for you, consider speaking with a real estate attorney<\/a> in your state. They can help identify potential risks and hidden costs associated with each arrangement. They can also help you understand repayment terms and negotiate with lenders, as appropriate.<\/p>\n

In the meantime, let\u2019s take a look at what home equity loans<\/a> are and how they work. We\u2019ll also compare them to other types of second mortgages, like home equity lines of credit (HELOCs).<\/p>\n

What Is a Home Equity Loan?<\/h2>\n

A home equity loan is a type of second mortgage that lets homeowners borrow money using their house as collateral. Think of it as a way to turn part of your home’s value into cash.<\/p>\n

With most home equity loans, you’ll receive a lump sum of money upfront that you pay back over time with fixed monthly payments. A home equity loan places a second lien on your home<\/a>, meaning the lender has a legal claim to your property as collateral until you repay the loan.<\/p>\n

Equity<\/h2>\n

To understand how a home equity loan works, you need to know about equity. Equity is the difference between your home’s market value and what you still owe on your current mortgage. For example, if the value of your house is $300,000, and you still owe $200,000 on your first mortgage, you have $100,000 in equity.<\/p>\n

Unlike your original mortgage, where you likely needed a down payment to buy the new home, a home equity loan uses your existing equity as security, or collateral. This reduces your equity because the loan essentially converts part of your ownership stake in the home into debt.<\/p>\n

Are Home Equity Loans Only for Home Expenses?<\/h2>\n

No. You can use a home equity loan for virtually any purpose, but they\u2019re most commonly used for home improvements, debt consolidation, education expenses, or other big purchases.<\/p>\n

People use a home equity loan for debt consolidation by applying all or part of the lump sum toward multiple debts with higher interest rates<\/a>, like credit card balances and personal loans.<\/p>\n

What Qualifications Do I Need For a Home Equity Loan?<\/h2>\n

Qualifying requirements can vary widely from lender to lender<\/a>, but most consider several factors. These typically include:<\/p>\n