What is a home equity loan (HELOAN)? A lump sum at a fixed rate, with a $50,000 example
A home equity loan is a one-time loan that uses the equity in your home as collateral: you get the full amount as a lump sum and repay it in equal monthly payments, usually at a fixed rate, over a set term. If you already have a mortgage, it is a second mortgage that you pay in addition to your first.
Equity is what your home is worth minus what you owe, and this loan turns part of it into cash without touching your current mortgage or its rate. Below: how the loan works step by step, how much you can borrow, what terms and costs look like, and $50,000 borrowed three different ways. Many lenders offer home equity loans, and LenderMatch lets you ask several of them at once.
How does a home equity loan work?
The CFPB describes a home equity loan (sometimes called a HEL, or HELOAN) as a way to borrow money using the equity in your home as collateral. In practice it works like this:
- You apply for a set amount. The lender checks your credit and income and estimates your home’s value.
- The lender caps the total. Your current mortgage plus the new loan can only reach a set share of the home’s value.
- You close and get the money. The full amount is paid out at once. The FTC notes you can cancel a home equity loan on your main home within three business days of closing, for any reason, in writing.
- You repay it on a schedule. Equal monthly payments of principal and interest start right away and run until the loan is paid off.
Need more later? You apply for a new loan. A HELOC, by contrast, lets you draw again as you repay; see what is a HELOC.
How much can you borrow with a home equity loan?
Lenders set a maximum combined loan-to-value (CLTV): all loans on the home together, as a share of its value. The formula:
Home value × the lender’s CLTV limit − what you owe = the most you can borrow
On a $400,000 home with a $220,000 mortgage and an 80% limit, that is $320,000 − $220,000 = up to $100,000. Limits differ by lender. One large national bank, for example, lists home equity loans up to 89.99% of the home’s value, with the maximum depending on credit, property type, occupancy, lien position and loan amount. Our guide to how much equity you can borrow covers the limits in detail, and the home equity calculator runs the formula for your home. In Texas, the state constitution caps all home equity borrowing at 80%; see the Texas guide.
Home equity loan terms and rates
The CFPB says a home equity loan usually has a fixed interest rate that will not change, and the FTC says payments are usually equal monthly amounts over a fixed term. Terms are set by each lender. One large national bank offers 5, 10, 15, 20 and 30-year terms. One large credit union lists 5 to 20 years, with fixed APRs starting at 7.34% for 5 years and 8.35% for 20 years for its best-qualified borrowers (rates checked October 22, 2026).
The term you pick changes both the payment and the total cost. On $50,000 at an illustrative 8.00% fixed rate:
| Term | Monthly payment | Total interest |
|---|---|---|
| 5 years | $1,014 | $10,829 |
| 10 years | $607 | $22,797 |
| 15 years | $478 | $36,009 |
| 20 years | $418 | $50,373 |
| 30 years | $367 | $82,078 |
Principal and interest calculated by LenderMatch. 8.00% is an illustration, not a quote; your rate depends on your credit, the CLTV and the lender.
Going from 15 to 30 years cuts the payment by $111 a month but more than doubles the interest. With a fixed rate, the payment stays the same for the whole term.
Worked example: $50,000 three ways
Say your home is worth $400,000. You owe $220,000 at 3.25% with 22 years left, a principal and interest payment of about $1,168 a month, and you need $50,000 now. Here are the three main ways to get it:
| Option | New total | Change |
|---|---|---|
| Home equity loan, 15 years at 8.00% fixed | $1,645 | +$478 |
| HELOC at 8.00% variable, interest only while drawing | $1,501 | +$333 |
| Cash-out refinance to $270,000, 30 years at 7.32% | $1,855 | +$687 |
Principal and interest calculated by LenderMatch, before closing costs. The HELOC rate is the 7.00% prime rate (unchanged since September 17, 2026) plus an assumed 1.00% margin. The refinance rate is Freddie Mac’s 30-year average for the week of October 22, 2026. All rates are illustrations, not quotes.
What the numbers show:
- The home equity loan keeps your 3.25% mortgage and adds a fixed payment that ends in 15 years. Your CLTV becomes 67.5%.
- The HELOC starts lower because the early payment is interest only. It rises if the prime rate rises, and again when principal comes due; see what happens when the draw period ends.
- The cash-out refinance costs the most here because it moves the whole $270,000, not just the new $50,000, to today’s higher rate. It tends to fit when your current rate is near today’s; see cash-out refinance vs HELOC.
Check your borrowing room first.
The home equity calculator shows how much you could borrow at 80%, 85% and 90% limits.
What does a home equity loan cost?
Besides interest, the CFPB says home equity loans may have upfront fees and costs, and it advises comparing more than the monthly payment. The FTC gives examples of third-party charges on home equity credit such as an appraisal fee, a credit report fee and attorneys’ fees. Some lenders cover most of them: one large credit union says it pays all closing costs on fixed-rate equity loans, and one large national bank says there are no closing costs in most cases, with exceptions such as loans over $500,000 and investment properties.
Because a home equity loan is closed-end credit secured by your home, Regulation Z requires a Loan Estimate within three business days of your application, and the CFPB says you get a Closing Disclosure at least three business days before closing. Both are standard forms, so offers line up side by side. Home equity closing costs compares fees across a loan, a line and a refinance.
Is a home equity loan a second mortgage?
Usually. The CFPB describes two kinds of second mortgage: open-end, which is a HELOC, and closed-end, which is a home equity loan. If you sell the home to cover your debts, the first mortgage is paid first. That extra risk for the lender is why the CFPB notes second mortgages often carry higher rates than first mortgages. On a home you own free and clear, a home equity loan is the only lien, so it is in first position. See is a HELOC a second mortgage for what lien position means in dollars.
Home equity loan vs HELOC vs cash-out refinance
| How you get the money | Rate and payment | |
|---|---|---|
| Home equity loan | One lump sum; your first mortgage stays as it is | Usually fixed; equal payments from the start |
| HELOC | A credit line you draw from as needed | Usually variable; often interest only during the draw period |
| Cash-out refinance | A new, larger first mortgage; you get the difference | New rate on the whole balance |
For a deeper side-by-side on the first two, including when staged spending favors a line, see HELOC vs home equity loan.
Home equity loan pros and cons
- Pros: a payment that does not change; a set payoff date; your first mortgage and its rate stay in place.
- Cons: interest on the full amount from day one, even money you have not spent yet; a new application if you need more; possible closing costs; and your home is at risk. The CFPB warns that if you cannot repay, the lender could foreclose.
The CFPB also cautions against borrowing against your home to invest, and suggests talking with a credit counselor before using home equity to pay off debts. If that is your goal, see using home equity for debt consolidation.
What is a home equity loan used for, and is the interest deductible?
Once the loan closes, the money is paid to you, and people use it for things like a renovation, a large bill or paying off higher-rate debt. The tax treatment depends on the use. IRS Publication 936 says interest on a home equity loan is deductible only if the money is used to buy, build or substantially improve the home that secures the loan, within the $750,000 limit on mortgage debt, and only if you itemize. Is HELOC interest tax deductible covers the 2026 rules, which apply the same way to home equity loans.
Frequently asked questions
What is a home equity loan in simple terms?
It is a loan for a set amount that uses your home as collateral. You get all the money at once and repay it in equal monthly payments, usually at a fixed rate. If you do not repay it, the lender could foreclose.
Is a home equity loan the same as a HELOC?
No. A home equity loan pays one lump sum, usually at a fixed rate. A HELOC is a credit line you draw from as needed, usually at a variable rate, and you pay interest only on what you have drawn. Both are secured by your home.
Is a home equity loan a second mortgage?
Yes, if you already have a mortgage. The CFPB lists the home equity loan as the closed-end type of second mortgage, paid after the first mortgage if the home is sold to cover debts. On a home with no mortgage, it is the first lien.
How long can a home equity loan be?
It varies by lender. Published terms commonly run from 5 to 20 years, and one large national bank offers terms up to 30 years. A longer term lowers the payment but raises the total interest: on $50,000 at 8.00%, it is about $10,800 over 5 years and $50,400 over 20.
Do you have to pay closing costs on a home equity loan?
Often, though some lenders pay most of them. The CFPB says home equity loans may have upfront fees and costs, and the lender must list them on a Loan Estimate and a Closing Disclosure, so offers are easy to compare.
Does LenderMatch check my credit?
No. LenderMatch never pulls your credit. A lender you choose may check it, with your permission, when you apply.
Compare home equity offers from several lenders →
Sources
- CFPB, “What is a home equity loan?” (last reviewed September 11, 2024).
- CFPB, “What is a second mortgage loan or ‘junior-lien’?” (accessed October 22, 2026).
- CFPB, “What is a Closing Disclosure?” (last reviewed May 2, 2023); Regulation Z, 12 CFR 1026.19(e) (accessed October 22, 2026).
- FTC, “Home Equity Loans and Home Equity Lines of Credit” (updated September 2025): lump sum, fixed APR, equal payments, three-day right to cancel.
- IRS, Publication 936 (2025), Home Mortgage Interest Deduction.
- A large national bank’s home equity comparison page: 5 to 30-year terms, up to 89.99% CLTV, closing cost exceptions (accessed October 22, 2026).
- A large credit union’s home equity rates page: fixed-rate terms of 5 to 20 years, APRs from 7.34% to 8.35%, closing costs paid (rates effective October 22, 2026).
- Federal Reserve, H.15 Selected Interest Rates: bank prime loan rate 7.00%, unchanged since September 17, 2026.
- Freddie Mac, Primary Mortgage Market Survey: 30-year fixed 7.32%, week of October 22, 2026.
Last reviewed October 22, 2026.