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How long are home equity loans?

Repayment terms for home equity loans typically range from five to 30 years.  Getty Images

Americans continue to experience the impact of inflation when they pump gas, buy groceries or make other everyday purchases. As such, many Americans are looking for ways to make ends meet. However, rising interest rates make credit cards, personal loans and other borrowing options less attractive.

A home equity loan is one option that may be helpful in today's economic environment. This second mortgage allows you to tap into your home's equity for funds you can use to pay off debt, fund a home renovation project or for almost any purpose.

Generally, you can borrow as much as 75% or 85% of your home equity. For example, if you have $500,000 equity in your home, $375,000 to $425,000 may be available to you. Home equity loan APRs typically range from around 6.25% to roughly 14%.

But loan terms can vary with home equity loans. Deciding what loan term is best for you will depend on your objectives for the loan, how long you plan on owning your home and other factors. Start by exploring rates and eligibility here now so you know exactly how much you can get. 

How long are home equity loans?

Home equity loans come with fixed rates and are available for short-term and long-term borrowers, with terms ranging from five to 30 years. The length of your loan term could vary depending on your loan amount, interest rate and your lender's policies. Keep in mind, longer loan terms come with lower monthly payments but higher overall interest charges, while shorter loan terms have higher monthly payments but lower total interest costs.

When is it better to get a short-term home equity loan?

In specific scenarios, a shorter-term home equity loan may be advantageous. Remember, home equity loans require you to use your house as collateral to secure the loan. That means you could lose your home if you fail to repay the loan. If you're uncomfortable risking your home, you may prefer a short-term loan to pay off your loan faster and remove the collateral.

If you anticipate a financial change in the near future, such as impending retirement or a major career move, a short-term loan could force you to pay off the loan faster to give you peace of mind during times of transition.

Ultimately, a short-term home equity loan will save you substantial money in interest charges. "If a borrower is looking to borrow a relatively small sum or is able to afford larger monthly payments, then a short-term home equity loan can save the borrower significantly on interest charges," says Peter Idziak, a senior associate at Polunsky Beitel Green who specializes in mortgage law. "With current home equity rates, a borrower will pay more than double the amount of interest charges on a home equity loan with a 30-year term when compared with a 15-year loan."

Explore your home equity loan rate options here now and see which length is best for you.

When is it better to get a long-term home equity loan?

By spreading out your balance over a longer period, a long-term home equity loan will usually come with lower monthly payments. That can be helpful if you're on a tight budget and need financial flexibility for other expenses and investments.

If you're consolidating high-interest debt, a long-term home equity loan could make your monthly payments more affordable, but you may end up paying more over the life of the loan. "Although the borrower will pay more in total interest over a longer-term loan, the lower monthly payments can allow the borrower to use more of their income to pay off other debts, build an emergency fund, or save for retirement," says Idziak.

When is a HELOC the better option?

Like a home equity loan, a home equity line of credit (HELOC) allows you to access the equity in your home for cash. But as a line of credit, a home equity loan operates similarly to a credit card, allowing you to draw on it when needed, for as little or as much as you like, up to your credit limit. Bear in mind, with a HELOC, you're not required to withdraw the entire approved amount, and you only pay interest on the portion you withdraw.

According to Craig Garcia, president of Capital Partners Mortgage Services, LLC, "the shorter timeframe you plan to pay the money back in, the more sense a HELOC would make. If you like the opportunity to tap into available credit lines in the future, the HELOC is the only mortgage vehicle that would allow you to do this."

Check your HELOC options here to see if it's the right move for you.

The bottom line

"Typically, financial advisors would advise you against using your home equity to fund investments in things that depreciate, or to fund lifestyle expenses," adds Garcia. Using home equity funds to facilitate a home renovation or repairs may be a better use of funds. According to the IRS, using your home equity funds to "buy, build or substantially improve your home that secures the loan" may provide a tax deduction on interest charges.

If you're considering accessing your home's equity to consolidate debt, pay a large unexpected expense or for any other purpose, it's wise to shop and compare multiple lenders. Having several offers to consider can help you find a loan offer with the best combination of interest rates, repayment terms and related fees. Use the below table now to start researching your options.

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