Quick Answer
A home equity loan lets you borrow a lump sum against your home's equity. It usually has a fixed rate, so your monthly payment stays the same, and it's paid back over a set term. If you already have a mortgage, it's a second mortgage you pay on top of your first one.
How is a home equity loan different from a HELOC?
With a home equity loan you get all the money at once. With a HELOC you get a credit line and borrow from it as you need to. Home equity loans usually have a fixed rate and equal payments that pay off the whole loan. HELOCs usually have a variable rate.
How long do you have to repay it?
You repay it over a set term. The CFPB notes that home equity loans are usually paid back over a shorter period than a typical 30-year mortgage, so the payments are likely to be larger than you might expect for the amount.
Do you still pay your first mortgage?
Yes. If you already have a mortgage, a home equity loan is a second mortgage. You make both payments every month. The CFPB also notes that second mortgages often carry higher rates than first mortgages.
What are the risks?
Your home is the collateral, so if you can't make the payments you could lose it through foreclosure. The loan also has upfront costs, which reduce the equity you can actually use, and a new loan can affect your credit score.
Common Questions
Is the rate on a home equity loan fixed?
Usually. The CFPB says a home equity loan usually has a fixed rate, though some are adjustable. Ask the lender which kind you're being offered.
Is it a good idea to pay off credit cards with a home equity loan?
The CFPB points out that you're taking out one loan to repay another, and now your home secures it. Be careful about trading short-term debt for long-term debt at a higher total cost.
Sources
This guide is general information, not advice about your situation.