A home-equity loan, also known as an "term loan" or "second mortgage," allows you to borrow money against your home's equity. Your equity is the difference between how much your home is worth and how much you still owe on your mortgage.

A home equity loan is a type of second mortgage. Your "first" mortgage is the one you used to purchase your home, but you can use additional loans to borrow against the property if you have built up enough equity.

Home-equity loans come in two varieties – fixed rate loans and lines of credit.

Fixed rate – An individual may borrow the entire amount that a bank is willing to lend him/her. This is a lump sum withdrawal under home equity loan and will have a fixed rate of interest which can be paid on monthly installments.

Line of credit (HELOC) – A home equity line of credit is when a borrower only borrows a part of the maximum amount approved by the lender and is available to him/her. Also called Home Equity Line of Credit or HELOC in short, this type of home equity loan allows a borrower to borrow several times depending on his/her requirements.