Home Equity Loan

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The best home equity loan lender offers a variety of repayment terms, low interest rates and few fees. Each lender will evaluate your eligibility differently.

 

Your rate will depend on your credit score, income, home equity and more, with the lowest rates going to the most creditworthy borrowers.

Most lenders will let you borrow up to 80 percent to 85 percent of your home’s equity, that is, the value of your home minus the amount you still owe on the mortgage. To get approved for a home equity loan, most borrowers will generally need:

  • Equity in their home > 20% of their home's value

  • Verifiable income history for two or more years

  • A credit score > 600

What Is a Home Equity Loan?

A home equity loan—also known as an equity loan, home equity installment loan, or second mortgage—is a type of consumer debt. Home equity loans allow homeowners to borrow against the equity in their homes. The loan amount is based on the difference between the home’s current market value and the homeowner’s mortgage balance due. Home equity loans tend to be fixed-rate, while the typical alternative, home equity lines of credit (HELOCs), generally have variable rates.

BENEFITS

Essentially, a home equity loan is akin to a mortgage, hence the name second mortgage. The equity in the home serves as collateral for the lender. The amount a homeowner is allowed to borrow will be partially based on a combined loan-to-value (CLTV) ratio of 80% to 90% of the home’s appraised value. Of course, the amount of the loan and the rate of interest charged also depend on the borrower’s credit score and payment history. 

 

Some of the best uses to make the most of your loan include:

  • Home improvements: Because these can often add value over time, using your home's value to increase the value can be helpful.

  • Debt consolidation: Using home equity to help with debt consolidation may give you better interest rates so you can get your finances on track.

  • Emergency expenses: If you don't have the funds for an immediate need, home equity loans can give you money with much more favorable interest rates than something like a payday loan.