What is a Home Equity Loan?
Basic home equity loan information at a glance
- A home equity loan is a loan that uses your home as collateral. When you take out a home equity loan, you turn your home’s equity into cash that you can use for other purposes and expenses.
- Home equity loans are sometimes referred to as second mortgages because you use the same home, on which you already have a mortgage, as collateral.
What is equity?
The equity in your home is the difference between how much you still owe on your mortgage and the home’s value.
- You build equity as you pay your mortgage and the home increases in value.
- To determine how much equity you have in your home, have your home appraised and then subtract your total mortgage payments to date from that appraised value.
Why take out a home equity loan?
When you’re facing major expenses, a home equity loan can be an affordable way to come up with the necessary funds to meet obligations like:
- Home improvements and renovations, like landscaping, your dream kitchen or a new roof
- Debt consolidation, like paying off high-interest rate credit cards or car loans
- Tuition, textbooks and other college expenses
- Large medical bills for hospital stays, major procedures or long-term care
How do home equity loan rates compare to other loans?
Home equity loans are attractive because they have lower interest rates than other types of loans. When you take out a home equity loan, though, you’ll pay closing costs and fees like you would on a new mortgage.
How does the home equity loan process work?
Once you’ve determined that you have enough equity in your home and are ready to take out a loan, answer a few questions online to start the home equity loan application process.
- A Citizens Bank Home Loan Advisor will answer any questions you have and work with you to complete your application.
- If the loan is approved, after the closing you’ll receive a one-time lump sum that you can spend.
- Home equity loans have fixed interest rates so you’ll have fixed monthly payments for the term of the loan.
Another option for borrowing against your home is a home equity line of credit. Learn more about home equity lines.
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