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What is a Home Equity Loan?

Home equity is the difference between the fair market value of a property and the balance of the mortgage owed against it. Home equity loans allow homeowners to access their equity in a lump sum of cash, which may be used for a variety of purposes, and is repaid in monthly installments. Home equity loans usually have fixed interest rates and are fully amortized while a home equity line of credit (HELOC) provides a line of credit that allows you to draw funds up to your maximum credit line.

Glossary Terms

Home Equity
Home equity is the difference between the market value of a home and any outstanding mortgage balance(s). A homeowner with a $200,000 property and a... <a href='/glossary/what-is-home-equity' title='See the full definition of Home Equity'>read more</a>
Home Equity Line of Credit
A home equity line of credit (HELOC) is a type of secondary financing that consists of a revolving line of credit secured by a lien junior to a... <a href='/glossary/what-is-home-equity-line-of-credit' title='See the full definition of Home Equity Line of Credit'>read more</a>

Understanding Home Equity Lines Of Credit (HELOCs)

A home equity line of credit allows you the flexibility to use your line of credit over a period of years while only making interest payments. Whether you need funds for a wedding, college tuition, home renovations, a vacation, or a second home, use LendingTree's network of lenders to secure a line of credit with the most flexibility and the lowest rate and fees. Not sure if your eligible, calculate your home equity to determine if a HELOC will help.

What If I Have Bad Credit?

Home equity loans and lines of credit are available, even if you have poor credit. In fact, many people use home equity as a way to consolidate debt. Doing this, along with on-time payments, can help improve your personal finances and restore your credit over time.

If your credit is less than stellar, prepare to pay a higher percentage rate on the money you borrow. In addition, remember that the line of credit is taken out against your house, so if anything happens to the point where you can't pay it off, the lender can file to foreclose on your home in order to repay the debt.


Depending on your situation, there may be advantages to getting a home equity line of credit. Advantages include:

  • Lower upfront costs compared to a home equity loan
  • Lower interest rate on borrowed money compared to most credit cards
  • Low or no closing costs (like with a home equity loan)
  • Interest is likely tax deductible for itemized deductions (check with your accountant to make sure you qualify)
  • Tax deductible home equity debt up to $100,000 ($50,000 if married filing separately)


A HELOC is an adjustable-rate mortgage, tied to the prime rate. This means that when the Federal Reserve moves the prime rate, the interest rate of your HELOC will change. A fluctuating interest rate means your payment amounts can go up or down (but mostly up). Disadvantages of a HELOC include:

  • Variable interest rate
  • Early closure fees
  • No interest rate caps

If you are still on the fence about getting a home equity line of credit download LendingTree's guide to home equity:

Your Free Guide To Home Equity