Home equity loans are lump-sum loans that require the homeowner to borrow against the equity they have in their home. The amount you can borrow is determined by the difference between the current value of your home and the amount you still owe on your mortgage.

These loans can be a convenient way for homeowners to access a large amount of cash quickly, whether it’s to pay off debt or do some home remodeling projects. Be aware that these loans are also known as “second mortgages,” meaning homeowners that take one on must be able to afford the monthly payments on top of their current mortgage payments. As they do come with fixed interest rates, however, monthly costs will remain stable.

Check out our home equity loan calculator to find out what options might be available to you.

Choosing to take out a home equity loan is a personal decision that should be made with your financial status and how much equity you currently have in your home in mind. Assuming that you are prepared and able to make your loan payments on time, these loans can be a great way to fund home projects, pay off other debt, or make a large purchase you’ve been considering.

Though they are not the only option when it comes to lump-sum loans, home equity loans come with their own unique set of advantages. Here are a few reasons that push many homeowners towards this option:

• Your home equity looks good: Whether you’ve simply been paying off your mortgage for years or the real estate in your area has increased significantly in value, a home equity loan can be a great option for homeowners looking to tap into the value they have in their home. Many homeowners actually use home equity loans to fund home renovations, which can further increase their home value and equity in the long run, or to make investments and grow their wealth that way.
• You need money quickly: One benefit of a home equity loan is the simplicity of applying for one. So long as you have enough equity in your home, qualifying for a home equity loan is often easier than it is for other loan types. Once you qualify, you will receive your cash in one large lump-sum payment almost immediately, making this type of loan extremely convenient. You’ll be able to tackle any planned renovations or start making payments on your outstanding debt almost as soon as you’ve signed the papers.
• You want a fixed-rate loan: Home equity loans come with a fixed interest rate, which is fantastic for homeowners who prefer to play it safe. This stability makes this one of the sounder ways to borrow.
• You have a lower credit score: As we mentioned above, home equity loans are often easier to qualify for than other loan types, largely because you are borrowing against the value of your home. This makes it less risky for lenders to be involved –- if you default on your loan payments, they could take your home as collateral. While your credit score will play a part in whether you qualify or not, it simply matters less when it comes to this type of loan.

If you’re interested in the benefits of a home equity loan, but don’t necessarily want to deal with a long repayment term or a lengthy application period, there are three major loan alternatives available:

• HELOCs: Unlike a home equity loan, HELOCs come with a line of credit that homeowners can borrow from as they choose over a set period of time. When repayment begins, you’ll only need to pay back what you ended up borrowing. Interest rates are variable, however.
• Personal Loans: If your goal is to have access to a sum of cash to pay off some debt or pay for a home improvement project, you might also consider taking out a personal loan. A personal loan is a great option for those looking to borrow money quickly, without making any changes to their mortgage. Keep in mind that personal loans typically have much shorter repayment periods.
• Equity Sharing: Companies such as Unison allow homeowners to exchange a percentage of their home’s future equity in exchange for access to cash today. This exchange will be made either when you sell your property or 30 years after signing the contract. Read our review of Unison here.

No matter which type of loan you ultimately choose, home equity loans are a great option to consider for homeowners looking to utilize the wealth they have in their home. Your personal circumstances will dictate the right loan type for you, whether that ends up being a home equity loan or another option entirely. When it comes to taking out any loan, we recommend carefully researching first to make sure you’ll be able to pay it off on time.