What is a Home Equity Loan?

A home equity loan, sometimes referred to as a second mortgage, is a type of secured borrowing that uses a house as collateral. With a home equity loan, you can borrow one lump sum of money up front and pay back fixed monthly payments. Like other fixed loans, these fixed monthly payments include principal, a portion of the balance of the amount you borrowed, and interest accrued on that principal.


Santander Bank® does not offer a home equity loan, but does offer a Home Equity Line of Credit (HELOC), which is an alternative way to access funds using a home as collateral. Understanding first how a home equity loan works can often be useful information when deciding if a HELOC is the best borrowing option for you.


Learn more about the difference between a HELOC vs. a home equity loan.


What is a Home Equity Loan Used For?

To apply for a home equity loan, a lender will evaluate several factors to determine if you qualify, the most important being the following:

  • The current value of the property you would like to borrow against, and compare it to how much debt you currently have outstanding on the home, which is known as your loan-to-value ratio.
  • Your debt-to-income ratio, which is a combination of any regular monthly payments you already make compared to your monthly income. This helps them assess your ability to take on another monthly payment.
  • Your credit score, to help determine your reliability based on past payment history.

Because you are using your house as collateral, a home equity loan may let you borrow more money at lower interest rates than an unsecured loan. However, there is risk involved, as a lender could foreclose on your home if you are unable to pay back the loan amount.


What is a Home Equity Loan Used For?

While a home equity loan can be used for anything, many borrowers choose to use the loan to improve their homes. This can increase the value of the home over time, which could lead to greater returns when selling the home. In addition to home improvements, borrowers can also use a home equity loan for other significant expenses, such as financing education or debt consolidation.


Decide between a loan and a line of credit.


Interested in Borrowing Against Your Home Equity?

A HELOC from Santander Bank can be used for the same purposes as a home equity loan. It may be a good, or even better, fit for your needs. Learn about home equity financing with Santander Bank.