Posted: 1 Jul '19

What is a Home Equity Loan and How You Can Take Advantage of One

A home equity loan is a great and inexpensive way to get money for many reasons. If you have average to good credit and enough equity to borrow on, you should easily qualify. You can use a home equity loan to lend money privately, live more comfortably, take a vacation, do home renovations, pay off credit cards, and much more. These loans traditionally cost less than a personal loan, making them more attractive.

The Three Most Common Home Equity Loans Are

Second Mortgage

  • Second mortgages are not always backed up by home equity as collateral. They are considered second because if you claim bankruptcy, they will be second in line to be paid off after the sale of your home and other assets. The more home equity you have to use as collateral, the lower your interest rate will be. That said, second mortgage loans can have interest rates that are just as high as personal loans, be aware of this when you head to the bank to look at a home equity loan.

Reverse Mortgage

  • A reverse mortgage is a home equity loan that retired people take out to live more comfortably. When you retire, your disposable income may go down a lot more than you anticipated due to inflation. Using this type of home equity loan will give you access to more money so that you do not find yourself choosing between heart medicine and breakfast. The idea here is that you are selling your home to the bank before you no longer live in it.

HELOC (Home Equity Line of Credit)

  • This is a bit different from outright home equity loans. In this situation, you are opening up funds equal to the amount of equity you have in your home for use as you need it. Kind of like a low interest rate credit card. Usually to qualify for something like this the borrower needs to have excellent credit.


  • Most are low interest rate loans that can be used with minimal restriction.
  • You can borrow a large lump sum if you need to.
  • Reverse mortgages do not require payback.


  • You need a glowing credit report and score to obtain a HELOC agreement.
  • Second mortgages can have high interest rates.
  • HELOC agreements often have variable interest rates.
  • Both the HELOC and second mortgage are to be paid back.

If you're thinking this is the right move, contact us by email or phone 780-413-1684 for assistance in picking out the home equity loan right for your situation.