As we’ve explained at the beginning of this article, a home equity loan is essentially a loan borrowed against your ownership in a property. Equity stands for how much of the property you actually own, financially speaking. To calculate your equity in a property, divide the market value of the home with the amount you owe on your mortgage. Now, equity loans operate as a second mortgage, which means that taking out this loan would put your home at risk of foreclosure in case you fail to make the agreed payments.
It’s important to address that home equity loans are not the same thing as a home equity line of credit. In short, home equity loans provide a one-time amount at a fixed interest rate. A HELOC on the other hand is a revolving source of funds that can operate like a credit card - you can access the funds whenever you need them. Equity loans are offered by banks and other financial institutions, which means you can choose from many types of home equity products out there.