Home Equity Loan Terms
A home equity loan lets you tap into the equity you’ve built into your home. You can use this money for any expense, such as home improvements or a vacation. However, these loans can come with origination fees and interest payments.
While you have flexibility with the term length, most home equity loans have terms ranging from five to 30 years. Knowing the available loan terms and rates can help you decide which home equity loan is right for you.
Table of Contents Skip to Section
Average home equity loan terms
Most home equity loans range from five to 30 years. A longer term will reduce your monthly payments but leave you with more interest in the long run.
It’s smart to compare several lenders before getting started. Here’s how term lengths vary across several well-known lenders:
| Lender | Term lengths |
| LendingTree | 5 – 30 years |
| Spring EQ | 5 – 30 years |
| Navy Federal Credit Union | 5, 10, 15, or 20 years |
| Discover | 10, 15, 20, or 30 years |
| Unison | 10 – 30 years |
| Prosper | 5 – 30 years |
| BMO | 5 – 20 years |
| U.S. Bank | 10 – 30 years |
Most lenders offer flexibility with repayment terms. For instance, you can often select a term as short as five years or as long as 30 years, in five-year increments.
You may want to look for another lender if you aren’t happy with the repayment terms. For instance, Navy Federal Credit Union doesn’t offer 30-year terms. Meanwhile, U.S. Bank and Unison don’t provide five-year terms for homeowners.
It’s also important to see how you repay the loan. Some lenders let you make fixed monthly payments, and others enter a home equity agreement (aka a home equity investment).
Under this type of agreement, you must buy out the lender at the end of the term, refinance the loan, or sell your property. Unison uses an equity-sharing model.
How to choose the best loan terms
Your loan term allows you to spread your monthly principal payments across several years, with most lenders offering loans ranging from five to 30 years. Shorter loans can help you save money in the long run due to the lender’s amortization schedule.
Essentially, you’ll pay interest first. Interest makes up almost all your monthly payments at first, with principal payments becoming a larger slice of the pie as the loan progresses.
How a loan term affects your total payments
Consider a $100,000 home equity loan at a 10% rate:
- 5-year term: With a five-year term, your monthly payment would be $2,124.70. After five years, you’ll have paid a total of $127,482.27—of which $27,482.27 is interest.
- 30-year term: With a 30-year term, your monthly payment drops to $877.57, freeing up more room in your budget. However, interest adds up over time, totaling $215,925.77—and that’s just the cost of interest. That’s over twice the original loan amount.
The difference? While shorter terms mean higher monthly payments, they can save you significantly in interest costs over time.
To choose the best home equity loan term, you must understand the opportunity cost of your money. Cash flow planning takes on a huge role in this decision.
Can you afford the larger payment and thus save money on interest over the life of the loan? It could be worthwhile, so long as you aren’t sacrificing elsewhere.
If you can’t afford the larger payment with the shorter term, the choice is easy—unless you can withdraw from investment accounts to help pay off the loan if needed. That decision comes down to the interest rate on the loan versus what you expect to earn in market returns.
To be safe, you could opt for the longer-term loan and then overpay to save on interest costs. This is advantageous because if you have cash flow issues, you have the lower required payment, whereas if you’re ahead on cash flow, you can afford to overpay the loan.
Kyle Ryan, CFP®
Do most borrowers choose short or long terms?
Most people opt for longer loan terms to free up more space in their monthly budgets. It’s more attractive to pay $877.57 per month than $2,124.70, especially for those with tight budgets. Lower housing costs make it easier to keep up with the cost of living.
Some people who opt for longer-term loans are aware of the extra interest they will owe in the long run. However, many are willing to make that trade-off.
Choosing a longer term can also increase your chances of approval. Lenders consider several factors during the application process, including your debt-to-income ratio (DTI). A lower monthly payment will reduce your DTI, making your application more attractive.
Some homeowners will not be approved for a five- or 10-year home equity loan because of their
DTI but may get approved for a 20- to 30-year term due to the lower monthly payments.
If you’re deciding between a short-term and long-term loan, consider the risks. For a longer term, these include a higher interest rate and more interest paid over time. If you sell the home, the loan is paid off with the proceeds.
The greater risks lie in the decision to take out a shorter-term loan. The minimum payment will be higher, leaving you with less flexibility.
Kyle Ryan, CFP®
How much can you borrow?
Lenders look at how much your home is worth and how much equity you have. Most will only let you borrow up to 80% of your home’s value, called the loan-to-value ratio (LTV).
For example, with an 80% LTV limit on a $500,000 home, your total mortgage debt can’t be more than $400,000. So if you already owe $250,000, you could borrow up to an additional $150,000 to reach that limit.
Some lenders offer more flexibility. For instance, Spring EQ lets homeowners borrow up to 90% of their property’s value. While an 80% LTV ratio in the previous example only lets you access $50,000, you might be able to access up to $100,000 in home equity with lenders that offer up to 90% LTV.
Wondering how much you can borrow based on your lender’s LTV cap? Try our home equity loan calculator to discover how much home equity you can borrow. This information can help you determine which loan term is right for your budget.
How do home equity loan terms compare to alternatives?
Here’s how home equity loan terms compare with home equity line of credit (HELOC) and home equity agreement terms.
Home equity loan vs. HELOC terms
Home equity loans and HELOCs have similar term lengths. It’s common for HELOCs to range from five to 30 years. However, HELOCs first start off with lower monthly payments, and interest only accumulates if you borrow funds against the credit line.
Home equity lines have a draw period, during which you can borrow as much capital as necessary, up to the limit. You’ll also have lower initial payments, but interest will continue to accumulate. Most HELOCs have variable interest rates, and most home equity loans have fixed rates.
Once the draw period concludes, the borrower must make higher monthly payments to pay off the remaining balance. They can’t borrow money from the credit line again. Some lenders will request that you pay off the entire balance as a balloon payment or opt for a refinance.
Homeowners can choose from several HELOCs, including the following:
| Lender | Draw period | Repayment period |
| Figure | 5 years | 5, 10, 15, or 30 years |
| Aven | 5 years | 5, 10, 15, or 30 years |
| Bethpage FCU | 10 years | 5, 10, or 20 years |
| LendingTree | Usually 10 years | 5 – 30 years |
| Hitch | Up to 10 years | 10 – 30 years |
| SpringEQ | 10 years | 10, 15, or 30 years |
| Navy Federal Credit Union | 20 years | 20 years |
Home equity loan vs. home equity agreement terms
Home equity agreement (HEA) terms are much different from home equity loans. An HEA doesn’t require monthly payments over the term’s duration. However, you eventually must buy out the lender’s stake, which will grow as your house appreciates.
For instance, if you receive $100,000 from a lender in exchange for a 20% equity position, and your property doubles in 10 years, you would need to repay the lender $200,000 to reclaim the 20% equity position.
HEAs are a better model for the following scenarios:
- People who can’t keep up with monthly mortgage payments
- Individuals who don’t qualify for traditional financing
Other HEAs let you repay the lender after selling your property. Some arrangements allow you to hold on to your property for as long as you want, even after the term concludes. Meanwhile, home equity loans have fixed monthly payments, offering more consistency for your budget.
| Lender | Repayment lengths |
| Hometap | 10 years |
| Point | 30 years |
| Unlock | 10 years |
| Newfi | 10 years |
| Unison | 30 years |
| Splitero | 30 years |
Can you tap home equity without a repayment term?
You can tap into your home equity without the typical repayment terms of a home equity loan, HELOC, or home equity sharing agreement. While these traditional products require you to make monthly payments, other options allow access to home equity without ongoing repayments.
Homeowners might seek options like these when they need extra cash but don’t want the pressure of regular payments, perhaps due to retirement, job loss, or other financial situations where maintaining cash flow is a priority.
Here are three alternatives to a home equity loan that allow you to access your home equity without a repayment term:
Cash-out refinance
A cash-out refinance replaces your mortgage with a new one that is larger than your current loan balance, allowing you to take the difference in cash. Unlike a home equity loan, which is a second loan on top of your mortgage with a separate repayment term, a cash-out refinance combines everything into one mortgage.
The new loan typically comes with term lengths similar to traditional mortgages—15, 20, or 30 years. Although you must make monthly payments, this option can offer advantages, such as a lower interest rate or longer repayment period, if you want to secure better loan terms while accessing equity.
This can be a better option when mortgage rates are lower than your current rate. It may be easier to manage payments over time than to manage a home equity loan and your original mortgage.
Reverse mortgage
A reverse mortgage allows homeowners aged 62 or older to borrow against their home equity and get the funds as a lump sum, monthly payments, or a line of credit. The loan doesn’t require repayment as long as you live in the home, and the balance is typically paid off when you sell the home, move, or pass away.
This can be a solid option for retirees who need additional income without the burden of monthly payments.
Home sale-leaseback
With a home sale-leaseback, you sell your home to a company or investor and continue living in it as a renter. You access the equity without taking on new debt or having a repayment obligation.
This might be an option if you need a significant amount of cash and are open to transitioning from homeowner to renter while staying in your current home.
The post Home Equity Loan Terms appeared first on LendEDU.