What Is Home Equity Loan?
A home equity loan is a lump-sum loan secured by a home's equity, repaid in fixed monthly installments at a fixed interest rate — distinct from a HELOC's revolving, variable-rate credit line.
Home Equity Loan in plain English
A home equity loan lets you borrow a fixed sum against your home's equity and receive it all at once. You repay it in equal monthly payments, usually at a fixed rate, over a set term.
If you still have a first mortgage, it is a second mortgage with its own payment on top of the first.
Worked example
Borrowing $60,000 against your home
Illustrative example - round numbers, not current market data. Calculated with Reaixo's calculator engines.
Assumptions
- Amount needed
- $60,000
- Home equity loan
- fixed 8.50%, 15 years
- HELOC
- variable, assumed to stay at 9.00%; interest-only draw period, then 20-year repayment
| Step | Calculation | Result |
|---|---|---|
| 1. Home equity loan payment (fixed) | $60,000 at 8.50% over 180 months | $590.84 |
| 2. HELOC payment while drawing (interest only) | $60,000 × 9.00% ÷ 12 | $450.00 |
| 3. HELOC payment once repayment starts | $60,000 at 9.00% over 240 months | $539.84 |
| 4. Payment jump at the end of the draw period | $539.84 − $450.00 | $89.84 |
Fixed loan payment vs HELOC draw / repayment payment: $590.84 vs $450.00 / $539.84. The HELOC starts cheaper because you pay only interest, but the payment rises by about $90 a month when repayment begins - more if its variable rate has gone up. The home equity loan costs more each month from day one but never changes.
What this calculation leaves out
- The HELOC rate is held constant for illustration; a variable rate can rise or fall.
- Closing costs, annual fees and minimum draws vary by lender and are not included.
- Both loans are secured by your home.
Try it: Home Equity Loan with your own numbers
Interactive and illustrative: change any value and the results update instantly in your browser. The figures come from the same engines as REAIXO's full calculators.
Home equity: value minus what you owe
Equity is the part of the home's value you own outright. It grows as you pay down the loan and moves with the market.
- Estimated equity
- $180,000
- 36.0% of the value
- Loan-to-value
- 64.0%
- Mortgage balance$320,000
- Equity$180,000
Show the numbers as a table
| Scenario | Home value | Equity | Equity % | LTV |
|---|---|---|---|---|
| Hypothetical: value −10% | $450,000 | $130,000 | 28.9% | 71.1% |
| Today (your estimate) | $500,000 | $180,000 | 36.0% | 64.0% |
| Hypothetical: value +10% | $550,000 | $230,000 | 41.8% | 58.2% |
Formula
Equity = Home value − All loan balancesLTV = Loan balance ÷ Home value × 100Assumptions
- Hypothetical scenarios only change the value; they are not forecasts.
- Selling costs (often 6% to 10%) reduce what you would actually receive.
- Lenders usually let you borrow only up to about 80% to 85% of the value across all loans.
Why it matters
You pay interest on the whole amount from the first day, so it suits a known, one-time cost rather than spending spread over time.
What it means for you
What happens if something goes wrong?
Like any mortgage, it is secured by your home, so falling behind can lead to foreclosure.
Common mistakes
- Borrowing more than the project needs because the sum is fixed.
- Using a long-term loan for short-lived expenses.
- Forgetting closing costs, which can apply as with a first mortgage.
HELOC vs. Home Equity Loan
A revolving credit line, usually at a variable rate — borrow, repay, and re-borrow as needed during the draw period.
A one-time lump sum at a fixed rate, repaid in equal installments — predictable, but no flexibility to re-borrow.
Full comparison: HELOC vs Home Equity Loan, with a worked example →
Home Equity Loan: frequently asked questions
How much can I borrow with a home equity loan?
It depends on your equity and the lender's combined loan-to-value limit, which caps your first mortgage plus the new loan as a share of the home's value.
Is a home equity loan a second mortgage?
Yes, if you already have a first mortgage. It is a separate loan secured by the same home.
Does a home equity loan have a fixed rate?
Usually, yes, which means the monthly payment does not change.
Related Terms
More Financing Terms
Recommended next step
Compare payments and total interest with your numbers.
HELOC vs home equity loan calculator →Sources and review
- What is the difference between a Home Equity Loan and a Home Equity Line of Credit (HELOC)?, Consumer Financial Protection Bureau. Supports: Home equity loans are paid as a lump sum and usually have a fixed rate and payment.
Where this applies: United States. Federal disclosure and servicing rules (TILA/Regulation Z, RESPA/Regulation X) apply nationwide; loan-program rules come from Fannie Mae, Freddie Mac, FHA, VA, USDA or the lender.
Last reviewed: · Updated:
Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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