Home Equity Loan

A home equity loan is a type of second mortgage that allows homeowners to borrow against the equity they have built in their home. Equity is the difference between the home's market value and the outstanding mortgage balance. Home equity loans typically offer fixed interest rates and fixed repayment terms.

The combined loan-to-value (CLTV) ratio, which includes the first mortgage and the home equity loan, typically cannot exceed 80-85% of the home's value. Interest on home equity loans may be tax-deductible if the funds are used to improve the home.

Home equity loans provide a lump sum of cash that is repaid in fixed monthly installments. They are often used for home improvements, debt consolidation, or major expenses. Because the loan is secured by the home, failure to repay could result in foreclosure.