What’s a Home Equity Loan, And Is It Right For Me?

Posted by Rebecca Prince on August 24, 2017

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Have you ever tried to look up a definition only to find you still had no idea what the word meant?  That’s how I felt the first time I googled home equity loans.

I had definitely heard of them, of course.

But, the results I got sounded like financial gibberish.  Until, I found this article by Bankrate.com. 


Let’s start with by defining a few words first!  According to Bankrate, here are a few terms you need to know:

Collateral is property that you pledge as a guarantee that you will repay a debt. If you don't repay the debt, the lender can take your collateral and sell it to get its money back. With a home equity loan or line of credit, you pledge your home as collateral. You can lose the home and be forced to move out if you don't repay the debt.

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

A Home Equity Loan is a second mortgage that lets you turn equity into cash.  It’s a one-time lump sum that is paid off over a set amount of time, with a fixed-interest rate and the same payments each month. Once you get the money, you cannot borrow further from the loan.


Now that you have the idea, here’s how it works out in numbers.  Let's say you buy a house for $200,000. You make a down payment of $20,000 and borrow $180,000. The day you buy the house, your equity is the same as the down payment ($20,000):

$200,000 (home's purchase price) - $180,000 (amount owed) = $20,000 (equity)

Fast forward 5 years. You have been making your monthly payments faithfully and have paid down $13,000 of the mortgage debt, so you owe $167,000. During the same time, the value of the house has increased. Now it is worth $300,000. Your equity is $133,000:

$300,000 (home's current appraised value) - $167,000 (amount owed) = $133,000 (equity)

Home Equity Example Table



Home equity loans are really helpful because you can use them for almost any purpose:

  • Home repairs or improvements
  • To consolidate debt
  • Funding that trip you’ve always dreamed of
  • Sending your child (or yourself) to college
  • Paying for medical bills or other large unexpected events

Of course, this isn’t an exhaustive list.  But, the great thing about home equity loans is that you can use them for just about anything.  So, what goals would you like to achieve?


At this point, you might be thinking…  wow, a home equity loan sounds like a pretty good deal.  You’d be right about that!  For many folks, it’s a great money saver.  Your payments and interest rates are fixed, and at DuGood, there is no closing cost on home equity loans for $250,000 or less.

As you evaluate whether a home equity loan is right for you, here are a few things to consider:

  • Figure out your goals and needs
  • Check rates
  • Evaluate your credit and equity

 How DuGood Can Help

If this article piqued your curiosity about home equity loans, there are a number of ways we can help:

Apply for a home equity loan


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