A home equity loan lets you borrow a lump sum against the value you have built in your home, usually at a fixed rate with a fixed repayment term. It can be a smart way to fund big one-time costs like renovations or debt payoff, but your home is the collateral — miss payments and you risk foreclosure. Borrow only what you need and have a clear repayment plan.
What a Home Equity Loan Actually Is
Last updated November 2026.
Equity is the gap between your home's market value and what you still owe on the mortgage. If your home is worth $350,000 and you owe $250,000, you have $100,000 in equity. A home equity loan lets you borrow against part of it as a lump sum.
Lenders usually cap borrowing at 80 to 85 percent of your home's value minus your mortgage balance. Rates are typically fixed, and you repay over 5 to 30 years.
Home Equity Loan vs HELOC: The Key Difference
A home equity loan gives you one lump sum with a fixed rate and predictable payments — best for a single big expense like a roof replacement. A HELOC works like a credit card: a credit line you draw from as needed, usually with a variable rate.
Choose the loan when you know the exact cost and want stability. Choose the HELOC when costs will arrive in stages, such as a long renovation.
Smart Ways to Use Home Equity
The best uses add value or cut higher costs: major home improvements that raise your home's worth, consolidating high-interest credit card debt, or funding education. These turn equity into something productive.
Risky uses include vacations, cars, or everyday spending — borrowing against your home for things that lose value fast is how people end up underwater. See debt consolidation pros and cons before rolling balances over.
The Real Risks of Borrowing Against Your Home
The biggest risk is foreclosure: your home secures the loan, so missed payments put your roof on the line. A second risk is owing more than the home is worth if prices fall after you borrow — selling then means bringing cash to closing.
Also watch fees: appraisals, origination charges, and closing costs of 2 to 5 percent are common. Compare the full cost, not just the rate.
How Much Can You Borrow? A Quick Example
Lenders look at three things before approving you:
- Loan-to-value ratio: most cap total borrowing at 80 to 85 percent of the home's appraised value.
- Credit score: 680 or higher usually unlocks the best rates; below 620 gets difficult.
- Income and debts: your total monthly debts generally must stay under 43 percent of gross income.
Example: on a $400,000 home with $280,000 owed, an 80 percent cap allows borrowing up to $40,000.
Estimate Your Payment Before You Apply
Never borrow based on the rate alone — run the monthly payment against your budget first. Our home equity calculator estimates payments, total interest, and how the loan changes your loan-to-value ratio.
Also read how mortgage payments break down and whether refinancing beats a second loan before you decide.
Frequently asked questions
How much equity do I need to get a home equity loan?
Most lenders want you to keep 15 to 20 percent equity in the home after borrowing. On a $300,000 home, that usually means owing no more than $240,000 to $255,000 before they will approve a loan. Requirements vary by lender and credit score.
Is the interest on a home equity loan tax deductible?
Sometimes. US tax rules generally allow the deduction only when the money is used to buy, build, or substantially improve the home securing the loan. Using it for debt payoff or vacations does not qualify. Check current IRS rules or ask a tax professional.
How long does it take to get a home equity loan?
Typically two to six weeks. The appraisal and underwriting take the most time. Some lenders offer faster digital closings, but expect at least a couple of weeks from application to funding.
Can I lose my home with a home equity loan?
Yes. The loan is secured by your home, so falling behind on payments can lead to foreclosure — on top of your original mortgage. This is why equity borrowing should fund needs, not wants, and payments must fit your budget comfortably.
Is a home equity loan better than refinancing?
It depends. Refinancing replaces your first mortgage — smart if rates dropped since you bought. A home equity loan keeps your current mortgage untouched, which wins if your existing rate is low and you only need extra cash. Compare total costs of both.