What Is a Home Equity Loan?

# Home Equity Loans: Tap Your Home's Value

A home equity loan lets you borrow money using your home as collateral. The amount you can borrow depends on your home's current value minus what you still owe on your mortgage.

Here's how it works. If your home is worth $300,000 and you owe $200,000, you have $100,000 in equity. Lenders typically allow you to borrow up to 80 or 90 percent of that equity, giving you access to $80,000 to $90,000.

Home equity loans come with fixed interest rates and set repayment terms, usually between 5 and 15 years. This makes your monthly payment predictable. Interest rates on home equity loans typically run lower than credit card or personal loan rates because your home backs the debt.

You can use the money for renovations, debt consolidation, education, or emergency expenses. The interest you pay may be tax-deductible if you itemize deductions, though recent tax law changes limit this benefit.

The risk is real. If you can't repay the loan, lenders can foreclose on your home. Before borrowing against your home's equity, ensure you can handle the monthly payments and have a solid reason for the debt.