How Long Are Home Equity Loan Terms? Explore Repayment Options
A home equity loan lets you borrow a lump sum of money and pay it back over a 5- to 30-year term. This timeline is similar to other loan options that use your home as collateral and require you to repay the debt on a set schedule.
Turning home equity into spendable cash can be a good choice if you need to consolidate high-interest debt, cover home improvements or invest in higher education. However, it’s important to first understand how repayment works and whether it fits into your financial plan.
How long are home equity loans likely to last?
Home equity loan terms usually start at five years, but can be stretched to between 10 and 30 years, depending on your lender. Typically, the longer your loan term, the more affordable your monthly payments will be. On the other hand, a shorter loan term usually comes with higher monthly payments.
Which home equity loan terms should you consider?
The best home equity loan term for you will usually depend on how much you can afford to pay monthly. Let’s compare the home equity loan rates and monthly payments on a $100,000 balance with 10-, 15-, 20- and 30-year repayment terms.
| 10-year home equity loan | 15-year home equity loan | 20-year home equity loan | 30-year home equity loan | |
|---|---|---|---|---|
| Interest rate* | 7.43% | 7.20% | 7.54% | 7.27% |
| Monthly payment | $1,183 | $910 | $808 | $684 |
| Total interest paid | $42,004 | $63,808 | $93,930 | $146,072 |
| Total cost | $142,004 | $163,808 | $193,930 | $246,072 |
Lenders set a cap on how much they think you can afford to borrow, using your debt-to-income (DTI) ratio — the percentage of your gross monthly income used to repay debt — when qualifying you for a loan. In most cases, your DTI ratio shouldn’t exceed 43%.
Use our mortgage calculator to estimate payments based on any loan amount and interest rate.
Choose a shorter term (5 to 15 years) if:
- You want the lowest total loan costs. Shorter-term loans typically offer lower interest rates. Plus, you’ll pay significantly less interest if you minimize the number of years you’re paying interest.
- You want to consolidate debt. A shorter term can help you eliminate your debt faster than your current payment schedule.
- You want to do home improvements that have an expected lifespan of five to 15 years. A shorter loan term ensures you won’t be stuck paying off an HVAC system or roof after it’s become outdated or is no longer functioning.
- You’re nearing retirement. If you’re five to 15 years from retirement, eliminating home equity loan debt before your income drops can help you enter retirement with peace of mind and more financial flexibility.
Choose a longer term (20 to 30 years) if:
- You want a low monthly payment. If you’re on a tight budget, a longer loan term gives you the lowest minimum payment.
- You need a large loan amount. At the higher end of large loan amounts, a longer term may be necessary to keep your payments reasonable.
- You want to do home improvements that have an expected lifespan of 20 to 30 years. Improvements with long lifespans give you plenty of time to pay off your loan.
- You’re buying an investment property or second home. If you use home equity to make the down payment, it makes sense to choose a longer loan term as long as you’re planning to own the property long term.
A home equity loan is a type of second mortgage that allows you to borrow against your home equity — that’s the difference between your home’s value and your outstanding mortgage balance. Similar to a traditional first mortgage, the loan uses the home as collateral and is repaid in fixed monthly installments. In the event of a foreclosure, a home equity loan is second in line to be repaid after a first mortgage.
You’ll typically need a maximum 85% loan-to-value (LTV) ratio to meet home equity loan requirements. Your LTV ratio is the percentage of your home value that’s financed by a mortgage. However, if you need to borrow more equity, some lenders offer high-LTV home equity loans.
Home equity loan terms vs. HELOC terms
A home equity line of credit (HELOC) usually lasts anywhere from five to 30 years, just like home equity loans. However, a HELOC is an open credit line that you can use as needed, not a lump sum. Just like with a credit card, you’ll make payments based on what you borrow, plus the interest charged on the balance you carry.
As long as you have access to the credit line, it can be used, repaid and used again. But once your “draw period” ends, you’ll have to repay your credit line according to your loan terms. This makes a HELOC a good choice if you’re not sure how much money you’ll need, or if you plan to make many purchases over time.
Read more about how home equity loans and HELOCs compare.
Should you consider a cash-out refinance instead?
Cash-out refinance repayment typically lasts 15 to 30 years. This is on par with longer-term HELOCs and home equity loans, but may not suit your needs if you need a 5- or 10-year repayment period.
Like the other options we’ve discussed so far, a cash-out refinance is a mortgage that helps you tap your home equity. In this case, though, you’ll take out a new first mortgage for more than you owe on your current loan and receive the difference as a cash lump sum.
As with a home equity loan or HELOC, you can use the money from your cash-out refinance for virtually any purpose.
Frequently asked questions
It typically takes two to eight weeks to apply for and receive the funds from a home equity loan. This is similar to how long it takes to get a HELOC (two to six weeks), while it may take as many as six weeks to get a cash-out refinance.
If your house is completely paid off, you have 100% home equity.
There are a few disadvantages to a home equity loan, including:
- You’ll likely pay higher interest rates than for a HELOC
- You’ll pay closing costs
- You’ll need at least 15% equity built up in your home to qualify
Since HELOCs typically have lower interest rates and you’ll only pay interest on the funds you withdraw rather than the full credit line amount — as such, they’re often the cheapest way to access home equity. That said, you’ll ultimately need to run the numbers on your specific situation, using actual loan offers you’ve received, to truly understand what’s best for you.
Compare Home Equity Offers
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