Home equity loan

A home equity loan is a type of mortgage.

Closed end home equity loans

In this loan you receive a lump sum loan amount for the equity in your home. It is called closed-end because it is a one time loan—the borrower receives a lump sum at the time of the closing and cannot borrow further from the loan. It is possible to borrow up to 100% of the assessed value of the home, less any liens. These fixed rate loans can be amortized up to 15 years with a 3, 5, or 7-year balloon payment. When the balloon balance is due, the borrower can pay off the balance or refinance.

Open End home equity loans

This is a revolving credit loan where the borrower can choose when and how often to borrow against the equity in the property. Like the closed end loan, it may be possible to borrow up to 100% of the assessed value of your home, less any liens. These lines of credit are available up to 25 years at a competitive variable rate. The minimum monthly payment is 1% of your balance.

Both are usually referred to as second mortgages, because they're secured against the value of the property, just like a traditional mortgage. Home equity loans and lines of credit are usually for a shorter term than first mortgages.

Home equity loans can be useful if one needs financing for home improvements, school tuition, loan consolidation, or any other reason. Some people are able to deduct home equity loan interest on their personal income taxes.