Home equity loan

Full definition

A home equity loan allows homeowners to borrow against the equity they have built up in their property. Equity is the difference between the home's current market value and the remaining mortgage balance. Most lenders will lend up to 80-85% combined loan-to-value (CLTV), meaning the sum of your first mortgage plus the home equity loan cannot exceed 80-85% of the home's appraised value. Structure: Home equity loans are installment loans, not revolving credit. You receive the full loan amount at closing, then repay it in fixed monthly principal-and-interest payments over a term of 5-30 years. The interest rate is almost always fixed, making the payment predictable. This distinguishes home equity loans from HELOCs, which are revolving and often have variable rates. APR comparison: Because the loan is secured by real property, lenders accept much lower APRs than on unsecured personal loans. As of mid-2026, home equity loan rates typically run 6-9% for borrowers with 700+ credit scores, compared to 10-36% for unsecured personal loans. The trade-off is that failure to repay can result in foreclosure. Use cases where a home equity loan beats a personal loan: large amounts ($50,000+), long repayment horizons, and situations where the borrower has substantial home equity and a stable income that makes default unlikely. Use cases where a personal loan beats a home equity loan: no homeownership, insufficient equity, time pressure (personal loans fund in 1-2 days vs. 3-6 weeks for home equity products), or situations where borrowers cannot risk their home as collateral. Tax treatment: Interest on home equity loans may be deductible if the funds are used to 'buy, build, or substantially improve' the home (IRC §163(h)(3)). Interest for personal expenses such as debt consolidation or vacations is generally not deductible post-2017 TCJA.

• HELOC (Home Equity Line of Credit)
• Secured loan
• Personal loan