What is a Home Equity Loan?
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What is a Home Equity Loan?

A home equity loan is a loan in which the borrower uses the equity in their home as collateral. Your home's equity is equal to its market value minus any mortgages or other liens owed on it.

A home equity loan is a loan in which the borrower uses the equity in their home as collateral. Your home's equity is equal to its market value minus any mortgages or other liens owed on it. Compare home equity rates.

In the early stages of your first mortgage loan, the majority of your monthly mortgage payments goes toward paying down the interest, but once you begin to make principal payments, the amount of equity in your home increases. Then, as your home appreciates over time, its equity grows even faster. The opportunity to use this equity is one of the benefits of homeownership.

Why do people use home equity loans?

As a financial tool, home equity loans can help you achieve many of your goals. The attractive rates can be lower than those of a personal loan or unsecured credit card - not to mention the added benefit of being tax deductible in most cases (always check with your tax or financial advisor before making any tax-related decisions).

A popular use of a home equity loan is for home renovations or repairs. By improving your home you are putting money back into your house, which can increase its value. Other reasons homeowners use home equity loans include:

  • Adding a room as their family grows
  • Purchasing a new car
  • Adding or renovating a pool
  • Taking that dream vacation
  • Paying for their child's education
  • Paying off outstanding debts
  • As emergency cash should unforeseen expenses arise

If you are a homeowner looking to use your home as a financial resource, then a home equity loan or home equity line of credit may be right for you. Always shop online to find the best home equity product that meets your specific needs. Compare home equity rates.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.
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Featured - Home Equity Line Of Credit Rates 2018

Lender Rate (%) Monthly Payment Learn More
Flagstar Bank 5.49% $284 Learn More
Third Federal Savings and Loans 4.24% $246 Learn More