Home equity
Home equity loans, explained honestly
The short answer
It gives you a lump sum at a fixed rate, repaid on a set schedule.
- You get one lump sum, all at once, up front.
- It's predictable: one rate, one payment, one payoff date.
- The rate is fixed, so your monthly payment never moves.
- The catch: you pay interest on the whole sum from day one, and your home is the collateral.
How a home equity loan works
Your equity is the part of your home you own outright. A home equity loan lets you borrow a fixed amount against that equity. You get it all at once, as a single lump sum.
You repay it in equal monthly payments over a set term at a fixed rate. It sits behind your first mortgage, so people call it a "second mortgage." Your home backs the loan.
Put a real number on it
~8–9%
A typical fixed rate
set for the life of the loan
5–30 yr
The repayment term
equal monthly payments
1
Lump sum up front
paid out all at once
Illustrative example. Actual rates and terms vary.
⚠ You pay for the whole sum from day one
Unlike a HELOC, you pay interest on the entire amount right away, whether you use it all or not. So borrow only what you need.
It's less flexible than a line of credit. And your home secures it, so a missed payment puts the house at risk.
✓ A home equity loan fits if
- You need a known, one-time sum.
- You want a fixed, predictable payment.
- You know the full amount up front.
✕ Look elsewhere if
- You'll draw money over time — a HELOC fits better.
- You're unsure how much you need.
- You want to pull funds only as bills arrive.