What Is a Fixed Rate Home Equity Loan?

A fixed rate home equity loan provides financing options for a variety of household projects and everyday bills. By borrowing against the money already paid toward your home, you can use your past financial hard work to benefit you and help you reach your goals. What is a fixed rate home equity loan? Keep reading to learn more about what it is and how it works.

Borrowing against equity

Some people may refer to a home equity loan as a "second mortgage." This reflects the fact that, just as with a traditional mortgage, your home acts as the collateral. Essentially, you ask the bank to loan you some portion of the money you have already paid on your home, referred to as your "equity." Because your house acts as collateral, though, remember that defaulting on your home equity loan might put your house at risk of foreclosure.

Fixed interest rates

In a fixed rate home equity loan, the interest rate you agree to with your lender can never increase. For this reason, you may find somewhat higher interest rates on fixed rate home equity loans than on variable rate loans. On the one hand, you pay more at the start. On the other hand, if interest rates rise in the future, your payments remain the same.

Use it for whatever you want

Fixed rate home equity loans can secure money for whatever you have in mind. Use these loans to finance a new deck, addition or other improvements to your home. Pay off high-interest credit cards or other bills. Your past payments toward your home loan provide a funding source for the things you need now.

Fixed rate home equity loans have both risks and rewards. If you carefully consider the pros and cons, you may find that these loans can help you realize your personal goals.