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Home equity loan

A loan secured by your home's equity that pays out one amount at the start and is usually repaid at a fixed rate; often called a second mortgage.

What It Means

A home equityHome equityThe part of your home you own outright: its current value minus everything you still owe on loans secured by it. See more loan lets you borrow a set amount against the equity in your home and receive it at the start, then repay it in regular payments over a fixed term. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) note that it is sometimes called a second mortgageMortgageA loan used to buy or refinance a home, secured by the home itself and repaid in monthly installments over a set term. See more and typically has a fixed annual percentage rate (APR). Your first mortgage stays in place, and the home secures both loans.

Try It: Choose Between a Home Equity Loan and a HELOC

Answer two questions to see which kind of equity borrowing matches, then try a payment.

How will you use the money?
What kind of rate do you want?

Home equity loan

One amount up front, typically at a fixed APR, per the FTC and CFPB.

Monthly payment$382.26
Total interest$28,807

You can cancel in writing within three business days after signing, under the Truth in Lending Act.

How People Say It

  • "We took out a second mortgage to pay for the addition."
  • "The home equity loan has a fixed rate, so the payment never moves."
  • "We still have three days to back out of it."

The Breakdown

Worked example. A couple borrows $40,000 against their home for a new roof and siding, at an example fixed rateFixed interest rateAn interest rate that's set when you borrow and stays the same for the life of the loan, so the monthly payment doesn't change. See more of 8% over 15 years:

Amount
Paid out at closing$40,000
Monthly payment$382.26
Total interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more over 15 years$28,807
Same loan over 1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more years$485.31 a month, $18,237 in interest

What the result means. The payment stays the same for the whole term, which makes it easy to plan around, and the whole amount starts collecting interest from day one, whether or not the contractor needs it yet. Over 10 years the payment rises but the total interest drops by about $10,570. If the money would be spent in stages, a HELOCHELOCA home equity line of credit: a revolving line secured by your home that you can draw on, repay and draw on again during a set draw period. See more charges interest only on what's drawn, at a rate that can move.

How it compares with the other ways to use equity. A home equity loan adds a second loan and leaves your first mortgage alone. A cash-out refinanceCash-out refinanceReplacing your mortgage with a new, larger one and taking the difference, minus closing costs, in cash. See more replaces the first mortgage with a larger one. A HELOC is a line you draw on over time.

Good to Know

When the loan is secured by your main home, the FTC and CFPB explain your right to cancel: three business days after you sign, get the Truth in Lending disclosure and get two copies of the cancellation notice. Saturdays count, Sundays and legal public holidays don't, and you must cancel in writing. The lender then has 20 days to return what you paid, and if the papers were missing or wrong you may have up to three years. On taxes, IRS Publication 936 for 2025 says the interest is deductibleInsurance deductibleThe part of a covered loss you pay yourself before your home, renters or auto insurance pays the rest, set as a dollar amount or a percentage. See more only to the extent the money buys, builds or substantially improves the home. The house secures the loan, so falling behind can cost you the home.

FAQ

Is a home equity loan the same as a second mortgage?

The FTC and CFPB say a home equity loan is sometimes called a second mortgage. It's a separate loan secured by your home that sits alongside your first mortgage.

Can I cancel a home equity loan after signing?

If your main home secures it, yes: you have until midnight of the third business day to cancel in writing, for any reason. The lender must return what you paid within 20 days.

Is the interest on a home equity loan tax deductible?

IRS Publication 936 for 2025 says it's deductible only to the extent the money is used to buy, build or substantially improve the home, and only when you itemize. Ask a tax professional about your situation.

Do It in Buhata

Bills

With Plus, add the home equity loan payment to Bills with its due date, next to your first mortgage, so both payments secured by the house stay in view.

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Related Terms and Categories

  • Home equity

    The part of your home you own outright: its current value minus everything you still owe on loans secured by it.

  • HELOC

    A home equity line of credit: a revolving line secured by your home that you can draw on, repay and draw on again during a set draw period.

  • Cash-out refinance

    Replacing your mortgage with a new, larger one and taking the difference, minus closing costs, in cash.

  • Fixed interest rate

    An interest rate that's set when you borrow and stays the same for the life of the loan, so the monthly payment doesn't change.

  • Debt consolidation

    Rolling several debts into one new loan or card balance, usually to get a single payment and, ideally, a lower interest rate.

  • Secured debt

    Money you owe that's backed by collateral, such as a home or car, which the lender can take if you don't repay.

Debt and credit

Sources

Federal Trade Commission, "Home Equity Loans and Home Equity Lines of Credit"; Consumer Financial Protection Bureau, "What is a home equity line of credit (HELOC)?"; CFPB, "Can I change my mind after I sign the loan closing documents for my second mortgage or refinance? What is the right of rescission?"; CFPB, "How long do I have to rescind? When does the right of rescission start?"; Internal Revenue Service, "Publication 936 (2025), Home Mortgage Interest Deduction"

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