A home equity loan lets you borrow against the value you have built up in your home. If your house is worth $400,000 and you owe $200,000, you have $200,000 in equity. A home equity loan lets you borrow a portion of that equity as a lump sum.
Most lenders allow you to borrow up to 80-85% of your equity. In the example above, you could borrow up to $160,000-$170,000. The loan comes with a fixed interest rate and fixed monthly payments over 5-30 years. Your home serves as collateral.
Home equity loans are popular for home renovations, debt consolidation, education expenses, and major purchases. Interest rates are lower than personal loans or credit cards (typically 6-9%) because the loan is secured by your home. The risk: if you cannot repay, the bank can foreclose on your house.