Definition
A home equity loan is a way to borrow against your home's equity. You receive a lump sum of cash upfront and pay it back with fixed monthly payments, essentially a second mortgage on your home.
Understanding Home Equity Loans
A home equity loan often comes up after you've built some equity in your home. It's like borrowing against the portion of the home you own outright. In simple terms, you receive a lump sum and pay it back over time with interest. Example: If your home is worth $300,000 and you owe $200,000, you might get a loan for a portion of the $100,000 equity. It's not the same as a home equity line of credit (HELOC), which works more like a credit card. A home equity loan provides a fixed amount, not a revolving credit line.
