A home equity loan or home equity line of credit (HELOC) are loans that let homeowners borrow money based on the value of their home and how much they currently owe on their home loan. The equity in your home serves as collateral for the loan.

A home equity loan provides homeowners with a single lump sum payment whereas a home equity line of credit (HELOC) acts as a revolving line of credit that allows homeowners to draw money as needed. Interest rates on home equity loans are generally lower than rates on personal loans. For this reason homeowners often use these types of loans to pay off credit card debt or purchase a new car.

Generally lenders will allow you to borrow a maximum of 80% of your home’s equity. For example, if your home is valued at $400,000 and you have no current mortgage, you could borrow up to $320,000 in a home equity loan. Just like with any mortgage, your credit score, income and debt to income ratio will be used to qualify you for a home equity loan.