What Is a Home Equity Loan and How Does It Work?

A Home Equity Loan (HELOAN) allows you to borrow a lump sum against the equity you've built in your home. It features a fixed interest rate and predictable monthly payments, making it an excellent option for large, one-time expenses like a home renovation project.

How Does a HELOAN Work?

With a HELOAN, you receive the total loan amount upfront and repay it over a set period, typically 10 to 30 years. The loan is secured by your home, and the interest rate remains fixed throughout the loan term.

Key Features of a Home Equity Loan:

  • Borrow up to 90% of your home's equity (CLTV)
  • Fixed interest rate for the life of the loan
  • Fixed monthly payments (principal + interest)
  • Ideal for one-time large expenses like renovations or debt consolidation
  • No prepayment penalties with most lenders

Common Fees:

  • Appraisal fees (digital appraisals may be available)
  • Processing and underwriting fees
  • Title search fees
  • Wire transfer fees

Where to Obtain a HELOAN:

  • Credit Unions: Usually competitive, direct servicing
  • Banks: Generally competitive rates
  • Brokers: Wider selection with potentially extra fees

Advantages of a Home Equity Loan:

  • Predictable, stable payments
  • One-time lump sum ideal for significant projects
  • Generally lower upfront fees

Disadvantages of a Home Equity Loan:

  • Limited flexibility (single withdrawal)
  • Secured by your home
  • Requires hard credit inquiry
Schedule a Free Consultation →

*The information provided on this page is for informational purposes only and does not constitute financial advice. Loan terms, rates, and eligibility criteria can vary by lender and individual circumstances. Always consult with a licensed financial advisor, mortgage specialist, or tax professional before making borrowing decisions.*