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.
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.
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.
Curious About Tapping Into Your Home’s Equity?
Download our free “First-Time Buyer Game Plan” eBook — includes a section on equity loans vs. HELOCs
Chat live now to find out how much equity you could qualify to borrow
Schedule a call with a Stairway Mortgage advisor to explore whether a home equity loan fits your goals
At Stairway Mortgage, we help you leverage your home’s value—
not just for today, but to build long-term wealth.
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