Home Equity and Home Equity Line of Credit

A home equity loan—often referred to as a second mortgage—is a type of financing that uses your home as collateral. Lenders typically allow you to borrow up to 80% of your available home equity.

With this type of loan, you receive a one-time lump sum, which is paid back over a fixed term, such as 5, 10, or 15 years. The loan usually comes with a fixed interest rate, and your credit score—based on your credit history—will help determine the rate you’re offered.

Repayment begins immediately, with consistent monthly payments that include both principal and interest.

A HELOC also uses your home as security but functions more like a credit card than a traditional loan. Instead of receiving a lump sum, you’re approved for a credit line and can borrow from it as needed—up to a predetermined limit. You only pay interest on the funds you actually use.

Most HELOCs offer a draw period (commonly around 10 years) during which you can access funds. After this phase ends, the repayment period begins—typically over 10 to 20 years—with monthly payments that include both principal and interest.

One key advantage of a HELOC is its flexibility. For example, if you plan to borrow $35,000 over three years to cover expenses, you’ll only pay interest on what you’ve withdrawn, rather than the full amount from the start—as you would with a lump-sum loan.