what are home equity loan explained in simple terms

Definition and how it works

A home equity loan is a second mortgage that lets you borrow against the equity in your home-its market value minus what you owe. You receive a lump sum at a fixed rate and repay in equal monthly installments over a set term, often 5–30 years. Because the loan is secured by your property, rates tend to be lower than unsecured debt, and interest may be tax-deductible when used for qualified home improvements.

When it makes sense

This option can fit larger, planned expenses-remodeling, consolidating high-interest balances, or funding education-when you want predictable payments. But your home is collateral, so missed payments risk foreclosure. Consider closing costs, your time horizon, and whether a HELOC or cash-out refi might suit you better.

• Typical equity needed: 15–20%; maximum combined LTV often 80–90%.
• Fixed-rate stability helps with budgeting.
• Closing costs can run 2–5% of the loan amount.
• Underwriting weighs credit, income, and debt-to-income.
• Funds can arrive in days to weeks; shop multiple lenders and fees.