Frequently asked questions
What is the difference between a home equity loan and a HELOC?
A home equity loan gives you a lump sum at a fixed rate with fixed monthly payments — like a second mortgage. A HELOC is a revolving line of credit (variable rate) you draw from as needed during a draw period, then repay over a repayment period. Choose a home equity loan when you need a specific amount for one purpose; choose a HELOC for ongoing or unpredictable expenses.
How much can I borrow with a home equity loan?
Most lenders allow a combined loan-to-value (CLTV) of up to 80%, meaning your mortgage balance plus the new loan cannot exceed 80% of your home's value. Some lenders go to 85% or even 90% at higher rates. On a $500,000 home with a $280,000 mortgage, the maximum at 80% CLTV is $120,000.
Is the interest on a home equity loan tax-deductible?
Interest is deductible only if the loan funds are used to 'buy, build, or substantially improve' your home (the securing property). Using it for debt consolidation, tuition, or other purposes does not qualify. Combined with your primary mortgage, the total deductible debt is capped at $750,000. Consult a tax professional for your specific situation.
What happens if I can't repay a home equity loan?
Your home is the collateral. If you default, the lender can foreclose. The primary mortgage gets paid first from sale proceeds, then the home equity lender. This is why home equity loan rates are higher than first mortgages — the lender is in a riskier 'second lien' position. Only borrow what you can comfortably repay.
Should I use home equity for debt consolidation?
It can make sense if you are consolidating high-interest debt (15–25% credit cards) into a lower-rate loan (8–9%). But you are converting unsecured debt into secured debt backed by your home. If you run up the credit cards again, you will be in a worse position. Address spending habits first, and only consolidate if you can commit to not re-accumulating debt.
How does my credit score affect the home equity loan rate?
Credit scores significantly impact home equity loan rates. A score above 740 gets the best rates (currently 7–9%); 680–740 adds 0.5–1%; below 680 may add 2–3% or result in denial. The spread between the best and worst rates can mean hundreds of dollars per month on a large loan. Check your score before applying.