How Does a Home Equity Loan Work?

How Does a Home Equity Loan Work?

KEY TAKEAWAYS

  • A home equity loan allows homeowners to borrow funds using the equity built up in their homes as collateral.
  • This type of loan is considered a second mortgage on top of your primary mortgage.
  • The loan amount is determined by the value of your equity, or the difference between the home’s current market value and the amount you still owe on your primary mortgage.
  • Borrowers should weigh the pros and cons of home equity loans to determine if they’re the right option for tapping into their equity.
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Written by Bill Lyons