Home equity loans have increased in popularity, with annual originations rising for five consecutive quarters, including a 23% jump among Gen Z in the second quarter of 2025. While they offer benefits like lower interest rates and tax deductions, they come with risks such as foreclosure and closing costs.

A home equity loan is a second mortgage where you receive a lump sum of cash based on the equity in your home, which is the value of your home minus your current mortgage balance. These loans use your home as collateral, meaning the lender can foreclose if you fail to make payments.

Home equity loans have fixed interest rates, making monthly payments predictable. They allow for spreading costs over a longer period, with potential tax advantages for funds used to improve your home. However, they can put your home at risk and deplete your equity.

Alternatives to home equity loans include HELOCs, cash-out refinances, reverse mortgages, or home equity sharing agreements. It’s important to compare rates and terms from different lenders before choosing a borrowing option. Always ensure you have the income to afford payments to avoid foreclosure.

Read more at Yahoo Finance.: Is a home equity loan a good idea? Here are the pros and cons.