One lump sum against your equity, paid back over a set term.
A home equity loan is the simplest way to borrow against your house without touching your first mortgage. You get one check, one fixed rate and one payment that doesn’t change.
That predictability is the whole point. For the right project, it’s exactly what you want.
A home equity loan is a second mortgage. The lender looks at what your house is worth, subtracts what you owe, and lends you a lump sum against part of the difference. You repay it in equal monthly installments over a set term, usually at a fixed rate, as the Federal Trade Commission describes.
Terms commonly run anywhere from 5 to 30 years. A shorter term means a bigger payment but a lot less interest over the life of the loan.
Your first mortgage stays exactly as it is. If you locked in a low rate a few years ago, you keep it.
That’s the biggest reason people choose this over a cash-out refinance right now.
A home equity loan fits a project with a firm number. If you’ve signed a contract for a $90,000 kitchen and bath remodel, you know what you need. Borrow it, lock the rate, and budget a payment that won’t move.
It fits less well when the scope is still changing. You pay interest on the full amount from day one, even while part of it waits for the next progress payment. And if the project grows, you can’t draw more. You’d need another loan.
That’s the real trade against a HELOC. A HELOC gives you flexibility and a variable rate. A home equity loan gives you certainty and a fixed one.
Lenders typically want you to keep some equity in the house after the loan. Many cap your first mortgage plus the new loan at around 80 to 90 percent of the home’s value, depending on your credit and the lender, according to Bankrate.
Say the house appraises at $350,000 and you owe $150,000. At an 80 percent cap, total borrowing tops out at $280,000, so the most you could take is about $130,000. Your income and credit still have to support the payment.
What the lender will approve and what you should borrow are two different numbers.
Expect closing costs. Bankrate puts them commonly at 1 to 5 percent of the loan, covering things like the appraisal, credit report, origination and title work. Some lenders, especially local banks and credit unions, cut or absorb a lot of these. It’s worth comparing.
The rate is usually higher than a first mortgage, because the lender is second in line if something goes wrong. In mid-September 2026, Bankrate’s national average for a home equity loan was a little over 8 percent, while Freddie Mac’s weekly survey had the average 30-year first mortgage just under 7 percent. Those numbers move constantly. Get real quotes.
Even at a higher rate, the math often still favors a home equity loan over refinancing your whole mortgage, because you’re only paying the higher rate on the new money.
It’s secured by your house. Miss enough payments and the lender can foreclose. Borrow an amount you can pay comfortably even in a bad year.
You pay interest on all of it right away. Unlike a line of credit, the whole balance starts accruing interest at closing, whether or not the contractor needs it yet.
No second trip to the well. If the project comes in higher or you add scope, the loan doesn’t grow. Build in a contingency before you settle on the loan amount.
Watch for balloon structures. The FTC notes some home equity loans require only interest for a period and then a large balloon payment. Make sure the loan fully pays off over its term unless you understand exactly why it doesn’t.
Selling soon changes the math. If you sell, the loan gets paid off from the proceeds. If you might move in a couple of years, the closing costs may not be worth it.
It can be. IRS Publication 936 allows the deduction on home equity debt only when the money is used to buy, build or substantially improve the home that secures it, and only if you itemize. An addition or major remodel generally qualifies. There are also limits on total qualifying mortgage debt. Your tax preparer should make that call, not your contractor.
A home equity loan on your primary residence generally comes with a federal right to cancel until midnight of the third business day after closing. The CFPB explains the right of rescission. Because of that window, lenders typically don’t release the money until it’s passed. Plan your project deposit around it.
Is a home equity loan the same as a second mortgage?
Yes. It’s a loan secured by your home that sits behind your first mortgage. HELOCs are also a type of second mortgage.
Is a home equity loan better than a HELOC for a remodel?
It depends on the project. A home equity loan suits a fixed, known cost and gives you a fixed payment. A HELOC suits a project that spends money over time or where the scope may change.
Does a home equity loan change my first mortgage?
No. Your existing mortgage, rate and payment stay the same. You simply add a second loan and a second payment.
Can I pay a home equity loan off early?
Usually, but ask whether there’s a prepayment penalty before you sign.
This page is general information, not financial advice. Smego Construction is not a lender, mortgage broker or financial advisor, and nothing here is a recommendation about your particular circumstances. Loan products, eligibility and terms change and vary by lender — confirm anything here with a qualified lender before making a decision.
Fifteen minutes on the phone. You’ll have a realistic range before we hang up — and if we’re not the right people for it, I’ll tell you.