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Home equity loans, or HELs, use the equity in your property as collateral, This means a lender can legally take possession of your home if you default on your loan.
However, as a secured type of loan, you can qualify for lower rates on HELs since the risks are lower from a lender’s standpoint. Perhaps the trickier part is understanding how equity works and how much money you will get.
Equity refers to the portion of your home that you own based on its market value, less the amount of any liens attached to it. For instance, you have $100,000 in equity if your home value is $400,000 and your remaining mortgage balance is $300,000. As you make more monthly payments, your equity will increase until you own the property completely.
Homeowners can borrow up to 85% of their home equity on average, though some lenders will allow up to 100%. For example, if you have $100,000 in equity, you can expect to borrow around $80,000 to $100,000 but not any higher.