Home Equity Loans and Home Equity Lines of Credit | Consumer Advice
: The current market value of your home minus the remaining debt on your primary mortgage. equity loan mortgage
An equity loan (often called a "second mortgage") allows you to borrow against the value of your home that is not already tied up in a primary mortgage. Unlike a primary mortgage used to purchase a home, an equity loan provides a lump sum for expenses like home improvements, debt consolidation, or education. Home Equity Loans and Home Equity Lines of
: A revolving credit line similar to a credit card where you borrow only what you need and pay interest only on that amount. Qualification Requirements : A revolving credit line similar to a
: A common guideline is the 28/36 rule , where no more than 28% of your gross monthly income goes to housing costs and no more than 36% goes to total debt. Some lenders may allow a back-end DTI up to 43%.
: While equity serves as collateral, your credit score influences the interest rates and terms offered. Key Comparisons Home Equity Loan Home Equity Line of Credit (HELOC) Disbursement Lump sum upfront As-needed draws Interest Rate Usually fixed Usually variable Repayment Immediate fixed payments Interest-only options during draw Credit Impact Reported as an installment loan Reported as a revolving account Strategic Use Cases
: Lenders often limit the combined total of your primary mortgage and equity loan to 80-85% of your home's appraised value.