What is a home equity loan and how does it work?

A home equity loan lets you borrow money using your home as collateral. It works by tapping into the equity you've built up, which is the difference between your home's current market value and what you still owe on your mortgage. For example, if your home is worth $300,000 and you owe $200,000, you have $100,000 in equity, and lenders typically let you borrow up to 80-85% of that amount. You receive the money as a lump sum and repay it in fixed monthly payments over a set term, usually 5 to 30 years, at a fixed interest rate. Because your home secures the loan, rates are generally lower than personal loans or credit cards, but failure to repay risks foreclosure.