What Is A Home Equity Loan And How Can You Use It?

How does a remodeled bathroom sound? A new kitchen complete with all stainless steel appliances? A first-class wedding reception? A dream vacation? Maybe you just want to pay off that huge credit card balance.

A home equity loan is a great way to pay for things in life that you might not otherwise be able to afford. But, just what exactly is a home equity loan and how might you use it?
A home equity line of credit allows you to borrow money using your home’s equity as collateral. Let’s dig a little deeper into that.

What Is Collateral?

Collateral is property that you pledge as a guarantee that you will repay a debt. If you don’t repay a debt, such as a loan, the lender can take that property (collateral) and sell it to get the money back. A home equity loan means you pledge your house as collateral.

What Is Equity?

This is the difference between how much the home is worth and how much you owe on the mortgage.

How Is Home Equity Calculated?

Here’s an example:

  • You buy a house for $200,000.
  • You make a down payment of $20,000.
  • Fast forward five years and after paying $13,000 on the mortgage you now owe $167,000.
  • During those five years the value of your home increased to $300,000.

You calculate home equity by subtracting the amount owed from the home’s current value (300,000 – 167,000). You would have $133,000 in equity.

Home Equity Loan vs. Line of Credit

There are two types of home equity debt: a home equity loan, and a home equity line of credit, also known as HELOC. They are both commonly referred to as a second mortgage.

  • A home equity loan is a one-time lump sum that is paid off over a set amount of time with a fixed-interest rate and the same payment each month. Once you get the money you cannot borrow further from the loan.
  • A HELOC works more like a credit card because it has a revolving balance. It allows you to borrow up to a certain amount for the life of the loan.

LEARN MORE: 5 Questions About Home Equity Answered

Which one is better for you depends on a number of factors. Stop in to an Honor Credit Union member center today to talk with one of our knowledgeable team members about using your home’s equity.

How To Use Home Equity Funds

The first thing to remember when considering taking out a home equity loan is to be smart about it. Think about what you are going to use the money for beforehand and have a plan in place. One of the most sensible ways to use your home’s equity is on a home improvement project as that will likely increase your home’s value as a return on the investment. You can also use it to pay off debt, such as credit cards, auto loans, or high-interest personal loans.

Other potential uses for a home equity loan:

  • Debt consolidation
  • Student loans
  • Auto loans
  • Vacation
  • Wedding expenses
  • Major medical expenses
  • Home improvement
  • Expensive vehicle repairs
  • Major purchase

Get Started

Whether you want to remodel a kitchen or bathroom, consolidate debt, pay for unexpected expenses, or just get away for a vacation, you can make it happen with a home equity loan, or home equity line of credit. Check out our Home Equity page to learn about the differences between a home equity loan and line of credit, and to see how much you might qualify for.

Home Equity Specials


 Take advantage of our limited time offers on a Home Equity Line of Credit, featuring an introductory rate of 0.99% APR*, or a Home Equity Loan, featuring a 5-year fixed rate as low as 2.99% APR*, a 10-year fixed rate as low as 3.49% APR*, or a 15-year fixed rate as low as 3.99% APR.* Get started online 24/7!

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12-Month Intro Rate

as low as



5-Year Fixed Rate

as low as


See above for other special rates & terms

*All loans subject to credit approval. 0.99% APR is good for a home equity line of credit with 80% Loan-To-Value (LTV) and a minimum credit score of 720. Introductory rate is for first 12 months only. Upon expiration of introductory rate, the rate will adjust to Prime rate (3.25% as of June 21, 2021) on the Advantage product; which has a 3.00% floor rate or to the qualified rate tied to Prime on the Traditional or Interest Only product; which has a 5.00% floor rate. For 5-year fixed term home equity, 2.99% APR will be fixed for 5 years with 80% Loan to Value and a minimum credit score of 720. A $20,000 loan for 5 years with an interest rate of 2.99% would have a monthly payment of $359.28. Payment example does not include amounts for taxes and insurance premiums. Actual payment obligation will be greater if taxes and insurance are required. $100.00 processing/closing cost fee on all home equity products plus appraisal fee, if required. New home equity loans only. Minimum loan amount for either product is $5,000. Offer good for primary or secondary residences only. Hazard insurance and/or flood insurance may be required. APR= Annual Percentage Rate. All credit union loan programs, rates, terms and conditions are subject to change at any time without notice. Other restrictions may apply. Limited time offer. Subject to credit approval. Equal Housing Opportunity. Insured By NCUA.

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