What Is a Home Equity Loan, and How Does It Work?
- By Jim Blackburn
- on
- 100 first time home buyer FAQs
1. You Borrow Against the Equity in Your Home
Home equity is the difference between your home’s current value and what you still owe on your mortgage. A home equity loan lets you borrow a portion of that difference—often up to 80-85% of your equity. But remember: you’re using your home as collateral, which means if you don’t repay the loan, the lender could foreclose.
Want to know how much equity you have available? Get a Free Home Evaluation to see your home’s current market value and calculate how much equity you could potentially borrow against.
2. You Get a Lump Sum With Fixed Monthly Payments
Unlike a HELOC (home equity line of credit), a home equity loan gives you the money all at once in a single lump sum. You then repay it in fixed monthly payments, typically over 5 to 30 years, with a fixed interest rate. This makes it great for one-time projects like:
- Home renovations
- Medical expenses
- Debt consolidation
- Starting a business
Because the interest rate is often lower than personal loans or credit cards, it can save you money if used wisely.
Considering a cash-out refinance instead? Calculate your Conventional Cashout Refinance Loan Payment now to compare accessing equity through refinancing your first mortgage versus taking out a separate home equity loan—especially if you can lower your primary rate.
3. Use With Caution—Your Home Is On the Line
Before taking out a home equity loan, make sure:
- You have a stable income
- You’ve budgeted for the monthly payments
- You’re using the loan for something that improves your financial future
This isn’t free money—it’s a strategic tool, and misusing it can put your home at risk. Done right, though? It’s one of the most powerful ways to turn equity into opportunity.
Ready to explore all your equity access options? Visit our Refinance or HELOC page to understand home equity loans, HELOCs, cash-out refinancing, and which strategy aligns best with your financial goals and risk tolerance.
Curious About Tapping Into Your Home’s Equity?
At Stairway Mortgage, we help you leverage your home’s value—not just for today, but to build long-term wealth.
📘 Download our homebuyer guides about equity loans.
🏠 Get a Free Home Evaluation to see your available equity.
🧮 Compare options with our Cash-Out Refinance Calculator.
📊 Learn more on our Refinance or HELOC page.
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