Definition
A home equity loan is a lump-sum second mortgage with fixed rate and fixed payment schedule. Borrow once, repay over 5-15 years. Less flexible than HELOCs but provides certainty—you know your payment won't change.
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Find my pathAbout this term
Home equity loans (also called second mortgages) are fixed-rate borrowing tools backed by home equity. Borrowers receive a one-time lump sum and make fixed monthly payments over a set term (typically 5-15 years). Because they're secured by the home, interest rates are lower than unsecured personal loans. Home equity loans are ideal for one-time large expenses like college tuition, medical bills, or major renovations. They create a second lien on the property; if the home is sold, the second mortgage is paid from sale proceeds.
Pro Tip
Compare home equity loans to HELOCs; if you need a lump sum and won't borrow additional funds, a fixed home equity loan's predictability is preferable.
Example
You need $40,000 for your daughter's college tuition. You obtain a home equity loan at 6.5% fixed over 10 years, resulting in a $433 monthly payment.