Home equity loans allow homeowners to tap into the equity they’ve built up in their homes. A home equity loan, also known as an equity loan or second mortgage, is a type of consumer debt. It allows you to borrow against the equity in your home.

As you make mortgage payments and your home’s value appreciates, your equity grows. The loan amount is based on the difference between your home’s current market value and your mortgage balance due. When you take out a home equity loan, you receive a lump-sum payment. You can use this cash for various purposes, such as home improvements, debt consolidation, or other financial needs. Home equity loans are secured by your property, just like your primary mortgage. Because they’re backed by collateral (your home), they often come with lower interest rates compared to unsecured loans. You’ll repay the loan over a predetermined term, typically with fixed-rate interest.