At its core, a home equity loan (HEL) lets you borrow money using your house as collateral. If you've built up equity — the portion of your home you truly own — you can access that value as a lump-sum loan with a fixed interest rate. It's like turning your home into a savings account you can draw from, while the bank holds a second mortgage on your property.
In This Guide
How Does a Home Equity Loan Work?
A home equity loan is a type of second mortgage. While your first mortgage pays for your home purchase, a HEL uses the equity you've built as security for a new loan. Think of it as the bank saying, "You've paid off a portion of your home — we'll lend you money against that portion, using the property as collateral."
Here's the key difference from your primary mortgage: with a HEL, you receive the entire loan amount upfront in a lump sum, then repay it with fixed monthly payments over a set term (typically 5 to 15 years). Your interest rate stays the same for the life of the loan, so your payment never changes.
How Much Can You Borrow?
Most lenders allow you to borrow up to 80% of your home's combined loan-to-value ratio (CLTV). This limit protects both the lender and borrower — ensuring there's meaningful equity left in the property. Use our calculator below to estimate your potential home equity loan amount and monthly payments, or learn more about current home equity loan rates.
Home Equity Loan Calculator
Enter your home value and current mortgage balance to see how much you may be able to borrow.
Your Estimated Results
The nationwide average home equity loan amount is $144,330, up nearly 39% since 2023, according to LendingTree. Some lenders offer 125% CLTV programs, but these typically come with higher rates and fees. If you're comparing options, see our full HEL vs HELOC comparison.
Current Home Equity Loan Rates (June 2026)
Based on Bankrate's weekly national survey of the largest lenders, here's what you can expect:
| Loan Term | Average Rate | Rate Range | Monthly Payment (per $10,000) |
|---|---|---|---|
| 5-Year | 8.12% | 5.65% – 10.25% | $203.37 |
| 10-Year | 8.25% | 6.01% – 10.50% | $121.69 |
| 15-Year | 8.20% | 6.15% – 10.75% | $95.88 |
*Rates based on $30,000 minimum loan, FICO 700, CLTV 80%. Source: Bankrate (June 3, 2026). Rates have increased 2 basis points from last month.
Your actual rate depends on factors including your credit score, debt-to-income ratio, loan amount, and combined loan-to-value ratio. A credit score of 700+ typically qualify for the best rates.
Home Equity Loan vs HELOC: What's the Difference?
These two products sound similar but work very differently. Understanding the distinction is crucial for choosing the right one.
| Feature | Home Equity Loan (HEL) | HELOC |
|---|---|---|
| Fund Access | One-time lump sum | Revolving credit line (draw as needed) |
| Interest Rate | Fixed — stays the same | Variable — can change |
| Monthly Payment | Fixed amount every month | Payments vary with balance |
| Repayment Structure | Immediate amortization | Draw period (5-10 yrs) + repayment period |
| Best For | One-time large expenses | Ongoing or unpredictable needs |
| Payment Certainty | High — predictable | Low — can fluctuate |
| Risk of Rate Increases | None | Yes — depends on Fed policy |
Expert insight: "Some borrowers need certainty. A closed-end second mortgage with a fixed rate and fixed monthly payment provides peace of mind," notes Bankrate's analysts. HELs offer stable, predictable payments without the risk of rising rates if the Federal Reserve raises the federal funds rate.
Bottom line: Choose a home equity loan if you know exactly how much you need and want payment certainty. Choose a HELOC if you want flexibility to borrow varying amounts over time.
Pros and Cons of Home Equity Loans
✓ Advantages
- Fixed rates — Your rate never changes, providing complete payment predictability
- Lower rates than most unsecured debt — HEL rates typically beat credit cards and personal loans
- Potential tax benefits — Interest may be deductible if funds improve your home
- Lump sum funding — Get all the money at once for immediate needs
- Higher borrowing limits — Access more capital than most unsecured options
- Debt consolidation tool — Simplify multiple high-interest debts into one
- No collateral required — Your home IS the collateral
✗ Disadvantages
- Your home is at risk — Defaulting can lead to foreclosure
- Closing costs and fees — Appraisal, origination, and title fees add up
- Second mortgage position — If you default, your first mortgage lender gets paid first
- Borrowing against equity — Reduces your actual ownership stake
- Rigidity — Can't access more money if needs grow mid-loan
- Qualification requirements — Need sufficient equity, credit score, and income
- Long-term interest costs — 10-15 year terms mean more total interest paid
Home Equity Loan Requirements
Lenders evaluate several factors when deciding whether to approve your application. Here's what most lenders look for:
🏠 Home Equity
📊 Credit Score
📉 Debt-to-Income
💼 Income Verification
The average credit score for approved HELOC borrowers was 763 in Q3 2024. However, some lenders now accept scores as low as 600 if you have compensating factors like low debt, high income, or significant equity.
How to Apply for a Home Equity Loan
Follow these six steps to secure a home equity loan:
Check Your Home Equity
Determine your home's current market value and subtract your remaining mortgage balance. Divide the result by your home's value to calculate your current equity percentage. Aim for at least 20% equity (80% CLTV).
Review Your Credit Score
Pull your credit reports from all three bureaus at AnnualCreditReport.com. Check for errors and pay down existing debts to improve your score. A score of 700+ gives you the best rates.
Compare at Least 3-5 Lenders
Banks, credit unions, and online lenders all offer HELs. Compare interest rates, fees (origination, appraisal, title), customer reviews, and local presence. Credit unions often offer better rates to members.
Gather Your Documentation
Prepare: 2 years of tax returns, recent pay stubs or W-2s, bank statements (60 days), current mortgage statement, homeowner's insurance declaration, and list of other debts.
Submit Your Application
Complete the lender's application (often online). The lender will order a home appraisal to verify the property value and review your financial documents. This process typically takes 2-4 weeks.
Close and Receive Funds
Review and sign all loan documents at closing. After the 3-day rescission period (federal law), funds are typically wired to your account within 5 business days.
Tax Implications of Home Equity Loans
The IRS allows a mortgage interest deduction on home equity loans, but with important limitations you must understand:
Key IRS Rule: Home equity loan interest is only deductible if the loan funds are used to purchase, build, or substantially improve the home that secures the loan. Using funds for vacations, debt consolidation, or investments generally does not qualify.
Additional tax considerations:
- The deduction limit is $750,000 of total mortgage debt (or $375,000 if married filing separately)
- Prior to 2018, HEL interest was deductible up to $100,000 regardless of use. This deduction was suspended from 2018-2025 by the TCJA, and its future remains uncertain
- Your lender will send IRS Form 1098 if you pay $600+ in interest, which documents your potential deduction
- Only interest is deductible — principal payments never qualify
Consult a qualified tax professional for advice specific to your situation. This site provides general information only and does not constitute tax advice.
Consumer Protection & Regulations
Home equity loans are governed by several federal laws designed to protect consumers:
Truth in Lending Act (TILA)
Requires lenders to disclose all loan terms, rates, and total costs before you sign. Gives you the right to compare offers.
Real Estate Settlement Procedures Act (RESPA)
Governs the closing process, requiring good faith estimates and requiring lenders to provide closing documents in advance.
Home Equity Loan Consumer Protection Act
Specifically protects homeowners with second mortgages, requiring clear disclosures about risks and terms.
Equal Credit Opportunity Act (ECOA)
Prohibits discrimination in lending based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
If you believe a lender has violated these laws, you can file a complaint with the CFPB (Consumer Financial Protection Bureau) or your state's attorney general. You can also learn more about qualification requirements before applying.
Frequently Asked Questions
A home equity loan (HEL) is a type of loan where you borrow against the equity in your home. It's typically a second mortgage that provides a lump sum of money with a fixed interest rate, repaid in regular monthly installments over a set period of 5 to 15 years.
Most lenders allow you to borrow up to 80% of your home's combined loan-to-value (CLTV). For example, if your home is worth $400,000 and you owe $200,000 on your mortgage, you could borrow up to $120,000 ($400,000 × 80% = $320,000 maximum, minus the $200,000 you owe).
As of June 2026, average home equity loan rates range from 8.12% for 5-year loans to 8.25% for 10-year loans, according to Bankrate's national survey. Your actual rate depends on your credit score, loan amount, and CLTV ratio.
A home equity loan gives you a lump sum with a fixed interest rate, while a HELOC (Home Equity Line of Credit) works like a credit card with a rotating credit limit and variable rates. HELs offer predictability with fixed monthly payments; HELOCs offer flexibility but less certainty about future payments.
Home equity loan interest is only tax-deductible if the loan funds are used to buy, build, or substantially improve the home that secures the loan. Interest on loans used for other purposes generally does not qualify for the mortgage interest deduction under current IRS rules.
Most lenders require a minimum credit score of 620 for home equity loans. However, borrowers with scores of 700 or higher are more likely to receive approval and better rates. The average HELOC borrower's credit score was 763 in Q3 2024.
Home equity loans can be used for any purpose. Common uses include home improvements, debt consolidation, major purchases, education expenses, medical bills, or business capital. Only uses that improve your home may qualify for the mortgage interest tax deduction.
Since a home equity loan uses your property as collateral, defaulting can lead to foreclosure. The lender can force the sale of your home to recover the debt if you fail to make payments. This is why it's crucial to ensure you can comfortably afford the monthly payment.