What Is a Home Equity Loan? Your Guide to When It’s a Good Option
A home equity loan is a type of second mortgage that lets you borrow cash using your home’s equity as collateral. It’s called a second mortgage because most people who get a home equity loan already have a first mortgage — the one they used to buy their home.
Much like a home equity line of credit (HELOC), a home equity loan gives you access to cash with no limits on how you can use the money. However, unlike a HELOC, with a home equity loan you’ll receive the money in a lump sum and repay it at a fixed interest rate.
Key Takeaways
- A home equity loan can be a good idea if you want to borrow cash at a low interest rate — as long as you have a solid plan for repaying the loan.
- Home equity loan rates are typically higher than HELOCs and first mortgage rates (like a cash-out refinance) and lower than personal loan, auto loan and credit card rates.
- You can usually borrow up to 85% of your home’s value. Average home equity loan amounts on LendingTree often range from $25,000 to over $500,000, depending on eligibility.
- You’ll need at least a 620 credit score and a DTI ratio no higher than 43%.
How a home equity loan works
Home equity loan funds are disbursed in one lump sum and you repay the money in equal monthly payments. Interest rates for home equity loans are fixed, which means your monthly payments won’t change due to market conditions like they would with a variable interest rate. Home equity loan terms can be as short as five years or as long as 30 years.
Remember: The stakes are higher with a home equity loan because it’s secured by your home. If you can’t make your payments, the lender could foreclose on your house.
Common requirements to get a home equity loan
Home equity loan requirements are a little more strict than mortgage or refinance guidelines. Here’s a quick overview:
- Maximum 43% DTI ratio. Home equity lenders divide your total debt by your income before taxes — a calculation called your debt-to-income (DTI) ratio — and generally set the maximum at 43%.
- Minimum 620 credit score. Lenders are more likely to charge you a higher interest rate for a home equity loan if you’re near that minimum 620 score, and some may require a minimum between 660 and 680.
- Maximum 85% LTV ratio. Some specialized home equity lenders set loan-to-value (LTV) ratios at 90% or higher, while most follow the 85% LTV maximum.
How much does a $50,000 home equity loan cost per month?
At today’s rates, the monthly payment on a $50,000 home equity loan is about $406.
Home equity loans are paid out in a lump sum and repaid each month in payments that do not change over the life of the loan, much like a first mortgage or personal loan.
Downsides of a home equity loan
- Possibility of foreclosure. If you default on the loan, your lender could repossess your house.
- High bar to qualify. The financial profile needed to qualify is stricter than you’d find with a cash-out refinance, credit card or personal loan.
- Multiple payments. You’ll have two monthly mortgage payments if you take out a second mortgage while still repaying a first mortgage.
Benefits of a home equity loan
- Stable monthly payments. The predictability of a home equity loan’s payments can make budgeting easier.
- Tax benefits. The interest you pay may be tax-deductible if the loan proceeds are used to buy, build or improve a home.
- Lower costs and fees. Home equity loan closing costs are typically more affordable than what you’d pay with a cash-out refinance.
- Flexibility. Home equity loan funds can be used for any purpose.
Home equity loan amounts, rates and terms
Home equity loan terms usually range between five and 10 years, but can go up to 30 years with some lenders. A longer loan term typically means more affordable monthly payments, while a shorter loan term means higher monthly payments because.
For example: A 30-year fixed rate home equity loan had an average interest rate of 7.38% on LendingTree in January 2025. At this rate, a $75,000 home equity loan would have a monthly payment of around $518. If the home equity loan term was only 15-years, the monthly payment on a would be about $690 ($172 more) because the borrower has less time to pay off the loan.
But the benefit of choosing a shorter loan term is that the borrower will pay less in interest over the life of the home equity loan.
Current average home equity loan interest rates and monthly payments on LendingTree
LOAN AMOUNT | APR AS LOW AS
Rates are calculated based on conditional offers for both home equity loans and home equity lines of credit with 30-year repayment periods presented to consumers nationwide by LendingTree’s network partners in the past 30 days for each loan amount. Rates and other loan terms are subject to lender approval and not guaranteed. Not all consumers may qualify. See LendingTree’s Terms of Use for more details.
| MONTHLY PAYMENT |
|---|---|---|
$25,000 | 6.63% | $160.08 |
$50,000 | 6.63% | $320.16 |
$100,000 | 6.63% | $640.31 |
$150,000 | 6.50% | $948.10 |
How much can I borrow with a home equity loan?
Most home equity lenders only let you tap up to 85% of your home’s value. Some lenders may set different maximums, but they all represent their limit using a loan-to-value (LTV) ratio that compares your loan amount to your home’s appraised value.
It’s possible to find lenders who offer high-LTV home equity loans, which give you the opportunity to borrow all or almost all of your home’s equity. In those cases you may want to calculate your maximum loan amount by hand.
Example home equity loan calculation
Let’s say you currently owe $250,000 on your home and your lender allows you to tap up to 95% of your home’s value. Your home was recently appraised at $350,000.
- Multiply your home’s value by 95% (0.95): $350,000 x 95% = $332,500
- Subtract your loan balance from the result: $332,500 – $250,000 = $82,500
- Your maximum home equity loan amount: $82,500
Most lenders will calculate your LTV by combining your first mortgage and the second mortgage you’re applying for. That’s why we subtracted your current mortgage balance in step two.
How to get a home equity loan
The process for how to get a home equity loan is very similar to the way you get a mortgage:
- Apply with multiple lenders and compare offers. You should compare at least three to five lender loan estimates before choosing your lender to get the best interest rate and loan for you. See our picks for the best home equity lenders to get started today.
- Provide qualification documents. Your lender qualifies you based on your income, current mortgage information, and credit score.
- Get an appraisal. A home appraiser will verify your home’s value before the lender finalizes your home equity loan amount.
- Close on your loan. You’ll pay your home equity loan closing costs — which often range from 2% to 5% of your loan amount and can be taken from your loan or paid out of pocket— and sign some paperwork.
The home equity loan process generally takes about two to four weeks. You’ll receive your money after a mandatory three-business-day waiting period that begins once you’ve signed your closing documents.
Home equity loan application checklist
When you are ready to apply for a home equity loan, you should follow the steps below:
The easiest way to figure out how much money you could qualify for with a home equity loan is to use an online home equity loan calculator. If you’d like to do the math by hand, simply multiply your home’s value by 85% (0.85), then subtract what you have left to pay on your current mortgage. The result is a rough estimate of your maximum home equity loan amount with an 85% LTV maximum.
How much debt and income do you have? How much room in your budget does that leave for a home equity loan payment? To help answer this question, you may want to calculate your DTI. If it’s over 43%, a home equity loan may not be an option for you. Ways to reduce your DTI include getting a cosigner, working on paying off old debts or increasing your income.
Reach out to three to five lenders and see what kind of home equity loan terms they may be willing to offer you. You can contact banks, credit unions, and online lenders to get quotes to compare and find your best offer. Make sure you look at quotes for interest rates, loan terms and monthly payments, costs and fees, and other details to make sure you choose the best deal for you.
After you choose your lender, you’re ready to submit a home equity loan application. You must provide the required information and documentation to the lender. Check with your lender to find out how you can submit your forms: through an online application, over the phone, or in person.
As your lender reviews and verifies your application, they will reach out if they have any additional questions they need you to answer. One question most lenders ask is to see an appraisal on your home to confirm its value, so you should plan to schedule time for an appraiser to visit your house. This part of the application process can take two to four weeks as all of your information is checked.
Once your application is approved, you will need to review and sign the required paperwork and pay any closing costs for your home equity loan. After a mandatory three-business-day waiting period, you’ll have access to the lump sum of cash from your loan to start using for whatever you need.
Compare our top home equity loan lenders
Lender | LendingTree rating | Available features |
|---|---|---|
 Read our review Best for low credit scores | 680 min. credit score Up to 90% LTV $45K min. draw |
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5- to 30-year terms No-closing-cost options Up to 100% LTV |
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5- to 30-year terms $10K to $500K loans 0.25% rate discount opportunity |
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5- to 30-year terms 0.50% rate discount opportunity No upfront fees |
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5- to 30-year terms Loans up to $500K 14-day closings possible |
What are home equity loan rates currently?
Home equity rates rise and fall with the financial markets just like mortgage rates. They are usually higher than alternatives like home equity line of credit (HELOC) rates or cash-out refinance rates. You can check current home equity loan rates online or by calling home equity lenders in your area.
Can I get a home equity loan with bad credit?
Home equity loans vs. alternative loan options
Other ways to tap into your home equity besides using a home equity loan can include a HELOC, cash-out refinance, or personal loan. It is important that you assess each option to make sure you choose the option that will work best for you.
- Home equity line of credit (HELOC): Similar to a home equity loan, a HELOC is a second mortgage that allows you to convert home equity into cash. A HELOC works like a credit card and comes with a variable interest rate. You can use the credit line as many times as you need during the HELOC draw period, but once the repayment period begins, you can’t withdraw from the credit line anymore and must repay the loan balance and interest in full.
- Cash-out refinance: A cash-out refinance is when you take out a new mortgage to replace your current home loan. The new loan balance covers more than just your outstanding mortgage — it’s large enough to allow you to also pocket the remaining difference in cash.
- Personal loan: A personal loan is an unsecured loan that pays you a lump sum of cash. Unlike the other options, it doesn’t tie your new debt to your home. This can offer some peace of mind but, because there’s no collateral securing a personal loan, they generally come with higher interest rates.
| Loan type | Better choice for | |
|---|---|---|
| Home equity line of credit | Borrowers who know they want to make several purchases or cover ongoing expenses. Those who could benefit from interest-only payments during the draw period. | Get Offers |
| Cash-out refinance | Those who can use a refinance to get better loan terms at a better mortgage rate than their existing loan. | Get Offers |
| Personal loan | Borrowers that are moving or don’t own a house. Borrowers that don't have great credit and don’t want to tie their new loan to their home. | Get Offers |
Still not sure which option is right for you? Read our comparison articles for additional help:
- Home equity loans vs. HELOCs
- Cash-out refinances vs. home equity loans and HELOCs
- Personal loans vs. home equity loans
How to choose the best way to use your home equity
A home equity loan can be a good idea for you if you’re using it to:
Make necessary home improvements, especially those that will increase your home’s value
Pay off or consolidate debt
Fund a business venture that’ll turn a profit.
However, if you’re tapping your home equity to pay for “wants” rather than “needs,” you’re entering risky territory. Putting your house on the line for nonessentials — especially ones that won’t pay for themselves — doesn’t usually make good financial sense.