A Guide to Home Equity Loans

Being a homeowner comes with multiple benefits. It gives you peace of mind and helps you reach a new level of comfort. In addition to it, you can also use your home equity as a way to reach some of your bold financial goals. Wonder how it’s possible? Let’s find out.

Understanding of Home Equity Loans


A home equity loan is a long-term, low-interest loan that allows homeowners to borrow against the equity in their home. Equity is the difference between the home’s value and the outstanding mortgage balance. Home equity loans are popular with homeowners who need extra cash to finance major purchases or cover significant expenses. They are typically used for home renovations, paying off medical bills, or making debt consolidation.

How Much Can I Borrow with a Home Equity Loan?

The amount you can take out depends on several factors. They include your home value, the outstanding mortgage balance, your income, and your credit score. Generally, lenders will allow you to borrow up to 80% of your home’s equity. 

Representative example:

Suppose that your home is worth $500,000 and you owe $250,000 on your mortgage. This way, you may be able to borrow up to $200,000 (($500,000 – $250,000) x 80%).

Home Equity Loan Interest Rates and Fees

Home equity loans typically come with lower interest rates than other types of loans. This becomes possible since they are secured by the value of the home. This means that a lender can compensate its losses by repossessing your property in case of default.

The average home equity loan interest rate is 8.12%. When it comes to a home equity line of credit, an interest rate is 7.96%. However, interest and fees can vary among lenders. Thus, it’s important to shop around and compare multiple offers before deciding on a loan. Additionally, your credit score has a direct impact on your interest rate. The higher your credit score, the lower rate you can expect to get.

Home Equity Loans vs. Home Equity Lines of Credit (HELOCs)

A home equity line of credit (HELOC) is another type of loan you can get against your home’s equity. While home equity loans provide a lump sum payment upfront, HELOCs work more like credit cards. A lender sets a credit limit, so you can draw the money as needed within the set amount.

HELOCs typically come with variable interest rates. This means that your loan payments can fluctuate if your interest rate changes because of economic conditions or other factors. Another distinction is that a HELOC allows you to borrow up to a certain limit over a specific period, also known as the draw period. After the draw period ends, you must start repaying the loan.

HELOC will suit you more if you need money occasionally and don’t want to pay interest on the entire loan balance that you don’t use. However, you should also have a practical repayment plan and avoid overspending. 

Pros and Cons of Home Equity Loans

There are several benefits and drawbacks to consider when it comes to home equity loans. On the plus side, they typically come with reasonable interest rates and have fixed payments. This makes them more predictable than credit cards or home equity lines of credit. Additionally, the interest you pay on a home equity loan may be tax-deductible.

However, home equity loans come with the risk of losing your home if you are unable to repay the loan at some point. Additionally, taking out a home equity loan may increase your monthly mortgage payment and extend the term of your mortgage.

Before getting a loan, you need to fully understand its terms and the impact it may have on your budget and regular life. Make sure to have a repayment plan and stick to it.

What to Do If I Can’t Pay Back a Home Equity Loan

If you find it difficult to make your loan payments or face some temporary money difficulties, you need to contact your lender as soon as possible. In some cases, the lender may be willing to modify the loan or set up a repayment plan. If you default on the loan, the lender may foreclose on your home. Thus, it’s important to be honest about your situation and seek assistance before it’s too late.

Get a Home Equity Loan at Rockland Savings Bank!

At Rockland Savings Bank, we offer home equity loans at competitive rates to help customers reach their bold financial goals. We’re happy to answer all your questions and help you decide on the type of loan that better fits your needs. Don’t hesitate to contact us within our working hours. We’re always at your service!