What Is a Home Equity Loan?

Updated June 2025

Building equity in your property is an essential part of getting the most out of homeownership. Equity is the difference between the value of your home and the amount you owe on your mortgage. Unlike other assets that may fluctuate in value, your home’s equity tends to increase over time as you pay off your mortgage and as your property appreciates. 

One of the best ways to leverage the equity in your home is through a home equity loan. While these words may make you feel a bit anxious, Landmark National Bank is here to help you feel comfortable and confident about equity financing. In this blog, we’ll provide a concise explanation of what a home equity loan is and how it works, the many potential benefits it offers homeowners, and any other information on home equity loans you may need. 

What Is the Purpose of a Home Equity Loan? 

A home equity loan is a type of home loan that allows you to borrow money using the equity in your home as collateral. Often referred to as a “second mortgage,” a home equity loan’s purpose is to provide a lump sum of money that you repay over time with fixed monthly payments. Because your home secures the loan, lenders may offer lower interest rates than those on credit cards or personal loans. 

At Landmark, we believe in human-first banking. That means giving you clear, confident guidance—so you can use your equity with purpose and peace of mind. 

Home Equity Loans: The Basics

A home equity loan allows homeowners to borrow against the equity they’ve built in their home over time. It may come with a fixed or variable interest rate, but it typically features a predictable repayment schedule—making it a reliable financial tool when managed responsibly. 

It’s important to note that to qualify, you generally need to have a strong credit history, a stable income, and a significant amount of equity in your home—usually at least 15–20%. 

Benefits of Home Equity Loans 

One of the primary advantages of a home equity loan is the competitive interest rate. Since the loan is backed by your home, lenders are able to offer lower rates compared to many unsecured options. 

Other benefits include: 

• Tax Deductibility – In some cases, interest paid on a home equity loan may be tax-deductible. (Check with your tax advisor to learn more.) 

• Flexible Usage – Use your loan to fund home improvements, consolidate debt, pay for college tuition, or manage unexpected medical expenses. 

• Predictability – With fixed monthly payments and clear terms, planning your budget becomes easier. 

Pros and Cons of Home Equity Loans 

We believe progress is personal—and so is every financial decision. Here are a few key pros and cons to consider as you decide if a home equity loan is right for you: 

Pros 

• Lower interest rates compared to credit cards 

• Fixed payments for easier budgeting 

• Potential tax benefits 

• Large lump sum for major expenses 

Cons 

• Your home is used as collateral, so failure to repay can lead to foreclosure 

• Closing costs and fees may apply 

• Requires a strong credit profile and sufficient home equity 
• Less flexible than a HELOC (home equity line of credit) if your needs change over time 

Home Equity Loans vs. Opening a Line of Credit 

It’s important to note that home equity loans differ from a HELOC, which is a revolving line of credit that works more like a credit card. With a HELOC, you can access the funds as you need them and have the option to only pay interest on the amount that you’ve borrowed during the term. 

On the other hand, a home equity loan provides you with a lump sum of cash up front, which you will need to repay over a predetermined period. Both options have their own set of pros and cons, and it’s important to weigh them carefully before choosing the option that suits your needs. 

When Should I Get A Home Equity Loan?

When is it appropriate to consider a home equity loan? If you have significant equity in your home and need to access cash for a major expense, a home equity loan may be an attractive option. You’ll be able to cash out, refinance, and take the next steps. 

For example, you might be considering a home renovation project, want to consolidate high-interest credit card debt, or need to cover the cost of a medical emergency. Home equity loans can provide access to significant amounts of cash that you can use at your discretion, making them a popular choice for both first-time homeowners and those with more experience. 

Frequently Asked Questions (FAQs) 

How much can I borrow with a home equity loan? 
Typically, you can borrow up to 80–85% of your home’s appraised value, minus what you still owe on your mortgage. 

Is a home equity loan the same as refinancing? 
Not quite. Refinancing replaces your existing mortgage with a new one. A home equity loan is an additional loan secured by your home equity. 

How long do I have to repay the loan? 
Terms vary, but many home equity loans are repaid over 5 to 30 years, depending on the lender and the agreement. 

Are there fees involved? 
Yes, there may be closing costs, application fees, and appraisal fees. Landmark’s team will walk you through every detail so you know what to expect. 

What happens if I sell my home? 
The home equity loan must be paid off when you sell your home—just like your primary mortgage. 

Understand the Details of Your Loan 

It’s important to understand the terms, interest rates, and repayment options associated with your home equity loan to ensure that it’s the right financial decision for you. It’s also essential to work with a trusted and reputable lender to obtain guidance and support throughout the loan application and repayment process. The friendly team of experts at Landmark National Bank has the knowledge and resources necessary to help guide you every step of the way. 

Secure a Home Equity Loan from Landmark National Bank 

A home equity loan can be an excellent financial solution for homeowners who have built up significant equity in their property. It’s a reliable, accessible, and affordable way to access cash when you need it most, and is often a better option than a HELOC or credit card. By understanding how home equity loans work, their benefits, and potential drawbacks, you can set yourself up for financial success now and into the future. 

At Landmark National Bank, we’re committed to providing our clients with financial expertise and personalized solutions. Whether you’re looking to take out a home equity loan or explore other financing options, we’re here to help you achieve your financial goals. For more information on home equity loans or any other financial needs, find your nearest Landmark branch or give us a call today.