What’s the Deal with Home Equity Loans?
What precisely is a home equity loan? It’s a method of borrowing money from your home using the equity as collateral. Equity is the portion of your house that you already own which is used as security.
How Does a Home Equity Loan Work?
Think of equity as your stake in the house:
Equity = what your home’s worth today, minus what you still owe on the mortgage.
You can borrow a chunk of that equity — usually up to about 80% — in one big lump sum.
The best part? Most home equity loan rates are fixed, so your payments stay the same every month. You just pay it back in equal monthly installments over the loan term.
How to Get a Home Equity Loan
So you want to turn your house into a little ATM? Great news: that’s basically what a home equity loan lets you do.
Here’s how to do it:
Figure out your equity (how much of your house you actually “own”)
Take your home’s current market value and subtract what you still owe on your mortgage.
Example: If your house is worth $400,000 and you owe $250,000, you’ve got $150,000 in equity.
Check your credit
Your credit score matters. Higher scores = better rates. If your credit’s on the lower end, you might want to work on it first.
Shop around
Not all banks and credit unions are created equal. Explore different options, compare rates, fees, and terms.
Apply
Submit your application with documents including: income proof, mortgage statements, tax returns.
Get approved and sign
If the lender approves, you’ll get a closing date to sign paperwork.
Collect your cash
The lump sum usually lands in your bank account within a few days.
HELOC vs. Home Equity Loan: What’s the Difference?
If you’re sitting on a pile of home equity and thinking, “Should I turn my house into a one-time payday or a giant credit card?” Excellent question. Let’s break it down:
Home Equity Loan:
- Like cashing in a huge check, you borrow a set amount all at once.
- Has a fixed interest rate, which means that your monthly payment is predictable.
- Good for hefty one-time costs, such as remodeling, debt relief, or unexpected expenses.
HELOC (Home Equity Line of Credit):
- Rather than getting a big chunk of cash all at once, you get a credit line that you can use whenever you need it.
- Typically has a variable interest rate, so payments can go up and down
- Useful for recurring expenses, such as ongoing home projects, unexpected costs, or simply building an emergency safety net.
The Bottom Line
If you want predictability and a set amount upfront, go with the home equity loan.
If you prefer flexibility and don’t mind some ups and downs, a HELOC might be a better fit.
Either way: it’s your house, your equity — just don’t forget to pay it back. Still have questions about home equity loans or debt resolution? Contact PDS today.
