A loan that allows home owners to borrow against the equity in their property

A home equity loan lets you use your equity, the value of your home minus what you owe, as a guarantee that you'll repay the loan. Depending on the lender, you could borrow between 80% to 100% of your home's equity, and sometimes more. Home owners often apply for home equity loans to pay college tuition, to make major renovations on a home, or to pay off credit card debt.

Home equity loans have a fixed interest rate and payment for usually 10 to 15 years. Since these loans are riskier than mortgages for lenders, the interest rates are higher. Keep in mind that you still have to fork out closing costs, such as the processing and appraisal fees.

See: Home equity line of credit
Compare: Refinance