A home equity loan is a second-lien loan that lets a homeowner borrow a lump sum against built-up home equity.
A home equity loan is a second-lien loan that lets a homeowner borrow a lump sum against built-up home equity.
A home equity loan matters because it gives homeowners a way to access equity without replacing the existing first mortgage.
It also matters because the structure is different from revolving credit. Borrowers typically receive a defined amount up front and repay it on a scheduled basis, which can make budgeting simpler for some goals.
Borrowers consider a home equity loan after they already own the property and have enough equity to support a second-lien borrowing request.
The term becomes practical when the borrower is comparing fixed-sum borrowing with a revolving line or with a full refinance.
A homeowner needs a defined amount for a major expense and chooses a lump-sum second-lien loan instead of refinancing the first mortgage. That is a home equity loan.
Home equity loan differs from Home Equity Line of Credit (HELOC) because a home equity loan is usually advanced as a lump sum, while a HELOC is structured as a revolving line.
It also differs from Cash-Out Refinance because the home equity loan usually leaves the first mortgage in place and adds a separate second lien.