Home Equity Loans, otherwise known as Home Equity Lines of Credit (HELOC), are typically taken out as a second mortgage. Equity, by definition, is the difference between the fair market value of a home and the amount owed on the mortgage (or mortgages). So a home owner who has a $100,000 first mortgage on a home worth $150,000 would potentially qualify for a home equity loan up to $50,000.

Because they are second mortgages, and therefore in a slightly higher risk category to lenders, home equity loans will typically have a slightly higher interest rate than first mortgages. You can also expect a home equity line of credit to be due and payable in ten years with monthly payments that are interest only. This means that you need to be prepared to pay off your loan in full after ten years while your monthly payments (unless you pay extra) won't be paying down the principal amount of the loan.

Most often, home equity lines of credit will have a variable interest rate, which are generally set to follow the prime rate. For instance, your home equity loan might have a rate of prime + 2.00%, adjustable on a yearly basis. However, consult with your loan officer about fixed rate options as most mortgage brokers and banks will have a fixed rate home equity plan as well.

Another feature of most home equity loans that a lot of borrowers find attractive is the option to have a credit card associated with the loan. This makes draws on the credit line very convenient. For example, if you have a home equity loan for the purpose of remodeling or improving your home you would be able to make large purchases at a major home improvement retailer like The Home Depot or wherever major credit cards like Visa and Mastercard are accepted. Again, consult with your loan officer to know if the convenient credit card is available (at no extra charge) on your home equity loan.