Home equity loans, explained
A fixed lump sum borrowed against your equity, sitting behind your existing mortgage. The mortgage — and its rate — stays exactly as it was.
What a home equity loan is
A home equity loan (often called a fixed second mortgage) lets you borrow a lump sum against the equity in your home and repay it in fixed monthly payments over a set term. It sits behind your first mortgage rather than replacing it, which is the whole point for anyone who locked in a low rate in 2020–22 and doesn't want to give it up.
Who it tends to suit
- You know the amount you need — a renovation quote, a tuition bill, a debt you want gone.
- You want a payment that doesn't move.
- Your first mortgage rate is lower than what a refinance would give you today.
How the numbers work
Lenders look at your home's value and everything you owe against it. Most will lend up to a combined 80–85% of the value across both loans, though that ceiling is the lender's to set. Here's the shape of it:
| Line | Example |
|---|---|
| Home value (appraised) | $420,000 |
| Lender's combined limit (80%) | $336,000 |
| Less your first mortgage | − $260,000 |
| Room to borrow (approx.) | $76,000 |
Example only. Your lender's limits, your credit and your income all affect the real figure.
Home equity loan vs. HELOC
Both borrow against equity and both leave your first mortgage alone. A home equity loan is a lump sum at a fixed rate; a HELOC is a line you draw from as needed, usually at a variable rate. If you know the number, the loan is simpler. If the number will arrive in pieces, the line is more flexible.
What to ask on the call
- What combined loan-to-value do you lend to?
- Is the rate fixed for the full term?
- What are the closing costs, and can they be rolled in?
- Is there a prepayment penalty?
- How long from application to funding?
[Confirm with each lending partner that a fixed-rate home equity loan is a product they offer, and in which states.]