Home Equity Loans: A Fixed Rate, With Your House on the Line

How a home equity loan works

Your equity is the part of your home's value you own outright: the market value minus what you still owe on the mortgage. A home equity loan lets you borrow part of it as one lump sum. You repay it in equal monthly payments at a fixed rate, often over 5, 10 or 15 years, on top of your first mortgage payment.

The lender takes a second lien on the house, behind your first mortgage. That security is why the rate is lower than on an unsecured personal loan, and also why the application looks like a small mortgage: an appraisal or automated valuation, a title search, income documents and a closing.

How much you can borrow: the CLTV limit

Lenders cap your combined loan-to-value ratio (CLTV): all loans secured by the home, divided by its appraised value. Many stop at 80%; some go to 85% or 90%, usually at a higher rate. In practice you typically need at least 15% to 20% equity left after the new loan.

Lenders also look at your credit and your debt-to-income ratio, since the new payment comes on top of everything else. Funditia's debt-to-income guide shows how to work yours out. Borrowing the maximum leaves no cushion if home prices fall.

What it costs in rates and closing costs

In Bankrate's survey of October 7, 2026, which assumes a $30,000 loan, a 700 FICO score and 80% CLTV, averages were nearly flat across terms. Here is what that means on $50,000:

Quotes ranged from about 6% to 10.75%, depending on the lender and term. Then add closing costs, commonly 1% to 5% of the loan: an origination fee, an appraisal (often a few hundred dollars, sometimes waived), a title search and title insurance, recording fees and sometimes an attorney. Some lenders advertise no closing costs; ask whether that means a higher rate or a fee if you pay off within a few years. Ask for the Loan Estimate, which lists every charge, and compare APRs.

Your house is the collateral

This is the trade-off that matters most. If you can't repay, the lender can foreclose, even if your first mortgage is current. Turning credit card debt, which can't take your home, into a loan that can only makes sense if the payment fits your budget with room to spare. Our guide to secured and unsecured loans walks through the difference.

• Three days to cancel: for a loan on your main home, federal law lets you cancel for any reason until midnight of the third business day after closing. Do it in writing; the lender must return your fees.
• Watch for balloon payments: an interest-only home equity loan can end in one large payment of the whole remaining balance.
• Be wary of pressure: a lender or contractor pushing you to borrow more than you asked for, or to sign quickly, is a reason to stop.

When the interest is tax-deductible

The IRS allows a deduction for home equity interest only if you itemize and use the money to buy, build or substantially improve the home that secures the loan. Money used to pay off cards, buy a car or cover tuition doesn't qualify, whenever the loan was taken out.

For debt taken on after December 15, 2017, deductible mortgage interest is limited to the first $750,000 of combined home debt ($375,000 if married filing separately), first mortgage included. If you take the standard deduction, the home equity interest saves you nothing on taxes. Keep receipts for the improvements, and check IRS Publication 936 for the year you file.

Home equity loan, HELOC or something else?

For debt payoff, set the full cost of each option side by side in the debt consolidation calculator, closing costs included.

Before you sign

1. 1 Get quotes from three lenders, including your current mortgage servicer and a credit union, for the same amount and term.
2. 2 Compare Loan Estimates line by line: APR, closing costs, and any prepayment or early-closure fee.
3. 3 Borrow only what you need, and keep your CLTV well below the lender's maximum.
4. 4 Check the payment against your budget with both mortgage payments together. The amortization schedule shows how the balance falls.
5. 5 Use your three-day right to cancel if anything at closing differs from what you were promised.

Common questions