home equity loan
A fixed-rate loan secured by home equity that provides a lump sum, repaid in equal monthly payments — sometimes called a second mortgage.
Example
“With $150,000 in home equity, she borrowed $50,000 as a home equity loan at a fixed 7% rate to fund renovations.”
Memory Tip
HOME EQUITY LOAN = fixed-rate lump sum against your equity. Unlike HELOC, you get it all upfront.
Why It Matters
Home equity loans matter because they allow homeowners to access large sums of money at relatively low interest rates, making them useful for major expenses like home renovations, education, or debt consolidation. Understanding how they work helps you compare them to other borrowing options and avoid overextending yourself financially.
Common Misconception
Many people mistakenly believe that a home equity loan is free money or that borrowing against their home does not carry risk. In reality, if you fail to repay the loan, the lender can foreclose on your home, putting your primary residence in jeopardy.
In Practice
Suppose you own a home worth 300,000 dollars with a remaining mortgage balance of 200,000 dollars, giving you 100,000 dollars in equity. You could take out a home equity loan for 50,000 dollars at a 7 percent fixed rate, repaying it over 10 years with a monthly payment of around 585 dollars, using the funds to renovate your kitchen.
Etymology
HOME (property) EQUITY (ownership value above debt) LOAN. Borrowing against HOME EQUITY.
Common Misspellings
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See Also
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