Life seems to happen in stages. You grow up. You work hard. You buy a house. And soon enough, that house might need a little fixing. A new roof. An addition. A kitchen renovation. It’s rare for a house to remain a perfect fit for all life’s seasons, even if it started out that way. This is where your home’s equity can help!


Home equity is the difference between the value of your home and what you still owe on it. To figure out how much equity you currently have in your home, you’ll need to subtract the amount you owe on your mortgage(s) from your home’s appraised value. So, if your home is valued at $120,000 and you owe $70,000 your home’s equity is $50,000.

Home’s Value ($120,000) – What is Owed ($70,000) = Home Equity ($50,000)

The equity in your home is what can be used as collateral for a loan. So what’s the benefit? By utilizing the equity in your home, it gives you an affordable way to finance what your house needs. Whether that’s a bathroom remodel, new HVAC system or other home repairs. You can also use it to help pay down high-interest debt such as credit cards or student loans.


A home equity loan is often referred to as a “second mortgage” and works by using your home’s equity as collateral for the loan. This type of loan allows you to receive a lump sum at either a fixed or variable interest rate. While a fixed rate is more common, it’s important to check with your financial institution to see what type of rates are available since this isn’t always the case.

Payment length may vary but plans usually last between 5-20 years; during which you pay monthly, just like a normal mortgage. This type of loan is best when there’s a specific amount of money needed. Such as $20,000 for a house remodel or $10,000 for credit card consolidation.


A home equity line-of-credit is more commonly referred to as a HELOC. It differs from a home equity loan in that it works like a credit card. It’s a maximum line-of-credit determined by your financial institution but uses your home as collateral. A HELOC allows you to spend any amount, at any time, for any purpose up to the set limit of the HELOC. It also has an extended draw period, the average of which is about 10 years. But unlike a home equity loan, interest is only accrued on the amount you actually spend.

Monthly minimum payments may change over time since HELOC’s always have a variable interest rate. But you can always pay extra or pay in full at any time!

But Use Caution...

While both options are helpful, it’s important to keep in mind that you are using your home as collateral. If for some reason you are unable to make repayments, there is a risk of foreclosure.

Another risk is if your home declines in value you could become “upside down” on the loan by owing more money than what the house is worth. So it’s always best to pay attention to the housing market as well when deciding if a Home Equity Loan or HELOC is right for you.


We know your home is one of your most prized possessions. So, if you have more questions or concerns about what option may be best for you, don’t hesitate to contact our Real Estate Lending team or give them a call at (865) 544-5409. To find out more information about HELOCs or Home Equity Loans, including current rates, visit our Real Estate Lending website.