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Home equity loan basics
A home equity loan, often called a second mortgage, pays a lump sum with a fixed rate and fixed payment. It sits behind your first mortgage, so lenders limit the combined loan-to-value (first mortgage + new loan ÷ home value), commonly to 80%–85%.
Payment by amount and term (8.25%)
| Loan | 5 years | 10 years | 15 years | 20 years |
|---|---|---|---|---|
| $25,000 | $510 | $307 | $243 | $213 |
| $50,000 | $1,020 | $613 | $485 | $426 |
| $75,000 | $1,530 | $920 | $728 | $639 |
| $100,000 | $2,040 | $1,227 | $970 | $852 |
| $150,000 | $3,059 | $1,840 | $1,455 | $1,278 |
Worked example
Home worth $400,000, mortgage $200,000, 85% CLTV limit: maximum = $400,000 × 0.85 − $200,000 = $140,000. Borrowing $75,000 brings the combined balance to $275,000, or 68.75% CLTV. At 8.25% for 15 years: $727.61 a month.
Home equity loan or HELOC?
Choose a loan for a single known cost (a roof, a payoff) and a fixed payment. Choose a HELOC for costs spread over time, where you pay interest only on what you draw. Either way the home is collateral.
Example rates are for comparison only, not offers or current quotes. Your rate depends on credit, loan-to-value and lender.
Sources and assumptions
- Combined LTV = (first mortgage + new loan) ÷ appraised value.
- CFPB: what is a home equity loan
Related
Frequently asked questions
How much can I borrow with a home equity loan?
Usually home value × 80%–85% minus your mortgage balance.
Is a home equity loan the same as a second mortgage?
Yes. It is a second lien on your home behind the first mortgage.
Are home equity loan rates fixed?
Most are fixed for the full term, unlike most HELOCs.