How much can I borrow with a home equity loan?
Lenders use Combined Loan-to-Value (CLTV) to determine your limit. Most allow 80–90% CLTV. Formula: (Home Value × max CLTV%) − Current Mortgage = Max Equity Loan. Example: $500,000 home, $280,000 mortgage, 85% CLTV → ($500,000 × 85%) − $280,000 = $145,000 max. You also typically need 20%+ equity remaining and a credit score of 620+.
Home equity loan vs. HELOC — which is better?
It depends on your need. Home equity loan wins when: you need a specific lump sum (renovation, tuition), you want rate certainty (fixed for full term), or rates are currently low. HELOC wins when: costs are ongoing or uncertain (staged renovation, ongoing medical), you may not need the full amount, or you want flexibility. HELOC rates are variable — they follow the prime rate and can rise significantly.
Home equity loan vs. cash-out refinance — which saves more?
Home equity loan is usually better if: your first mortgage has a great rate (don't want to reset it), you need less than $100K, or closing costs on a full refi are prohibitive. Cash-out refi is better when: current rates are lower than your first mortgage, you need a very large amount, or you want to simplify to one payment. The key question: do the savings from a lower first mortgage rate outweigh the cost of resetting to a 30-year term?
Is home equity loan interest tax deductible?
Yes — only if the loan is used to buy, build, or substantially improve the home securing it (IRS Publication 936). If you use it for debt consolidation, travel, or other purposes, interest is not deductible. The deduction requires itemizing and is subject to the $750,000 mortgage interest limit. Always verify with a CPA — incorrect deductions can trigger audits.
What credit score do you need for a home equity loan?
Most lenders require 620–680 minimum, but the best rates require 700–740+. Below 620 is difficult and rates will be very high. Lenders also look at: DTI (typically ≤ 43%), employment history, loan-to-value, and payment history on your first mortgage.
What are the risks of a home equity loan?
The primary risk is foreclosure — your home is the collateral. If you can't make payments, you could lose your home, even if you're current on your first mortgage. Other risks: taking on debt for depreciating assets (vacations, cars via debt consolidation), overextending if home values fall (underwater), and the temptation to treat equity as a piggy bank rather than wealth. Only borrow what you can confidently repay.