A type of high risk loan which is designed to facilitate lending secured by the borrower’s equity in a home property (which is used as collateral). Borrowers are provided with a lump sum loan amount which has to be paid off over a certain period of time (e.g., 5, 10, or 20, years) based on a fixed or adjustable interest rate. Home equity loans (HELs) are given by lender as second lien mortgage loans (in most cases, home-owning borrowers keep their existing mortgage loans). Because they are more risky to lenders than first lien mortgages, interest rates on home equity loans are higher.

Home equity loans allow borrowers to cash out part or all of the equity in their homes in a lump sum.