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A home equity loan enables you to access funds from banks and NBFCs by putting the equity of your house as collateral. It is a second mortgage where you can pledge your home as security even when you have already availed of a loan against it.  

In simple words, the amount of a home equity instalment loan is the difference between the market value of the said property and its mortgaged value. Read on to find out more about this type of loan and what home equity loan rates most banks charge.

Home Equity Loan Types

There are two home equity loan types for which you can apply from some of the major banks and NBFCs. These include:

  • Fixed-rate loans

This loan provides you with a lump sum payment that you can repay at a predetermined interest rate over the loan tenure. 

Its key is that its interest rate does not change according to market conditions. To put it simply, throughout the loan tenure, you will pay the same interest rate.

  • Home Equity Line of Credit (HELOC)

The interest rate on a HELOC can fluctuate as per the market conditions. The mechanism of this loan is similar to a credit card. You can borrow a portion of the pre-approved loan from the lending institution. 

The full loan amount has to be repaid on the completion of the loan tenure. Typically, lending institutions offer HELOC as part of the credit card offers. Like credit cards, you can borrow again, as per your credit limit, after settling your dues.

Working Mechanism of a Home Equity Loan

In many aspects, the working mechanism of a home equity loan is just like a house loan. For instance, your house is the equity or collateral for both loan types. 

A home loan allows you only to borrow a maximum of up to 90% of the market value of your house. On the other hand, the home equity loan can be availed for the total market value of your property.

In other words, you receive funds or cash according to the market value of your property. The amount, along with interest, has to be repaid at a fixed interest rate over the loan tenure.

Features and Benefits of Home Equity Loan

Convenient and easy

You can qualify for this loan easily as this is a secured loan. As you pledge your house as collateral for this loan, financial institutions can provide it even if you don’t have a good credit score.

Helps convert the market value of a house into cash

With a home equity loan, you can easily receive a loan amount corresponding to your house’s market value.

Allows to meet the cost of any big-ticket expense

The home equity loan can help you receive a lump sum amount. You can then use it for meeting the cost of any big-ticket expense.

Fixed rates of interest

The key advantage of a home equity loan is that the interest rate is not affected by market fluctuations and remains fixed throughout the loan tenure.

Features and Benefits of HELOC

Borrow as per your requirement

With a HELOC, you have the option to borrow a portion of your available credit limit.

Borrow the amount again after repayment

Once you settle your dues, you have the option to borrow the loan amount again.

Pay lesser interest

With a HELOC, you are charged interest only on the borrowed amount.

Flexibility in withdrawals

A HELOC allows you to borrow portions of your total credit limit continuously. So, you can use it to meet mid to short-term financial goals, requiring regular payments.

Key Differences between Home Equity Loans and HELOC

To know the key differences between a home equity loan and a HELOC, you can refer to the table given below:


Home Equity Loan


Interest rate


Varies according to market conditions

Loan amount

Lump-sum amount

Pre-approved amount


EMI payments involving both interest and principal components

You have to pay only the interest amount


Popular in India

Comparatively lesser-known in India

What are the Home Equity Loan Requirements?

While home loan equity requirements vary depending on the lender, the following are certain requirements that all lenders need you to fulfil:

  • The value of equity of your house must be at least 20% of its market value

  • Regular source of income to be attested by two years of ITR filings or bank receipts

  • A credit score of more than 600

Differences Between a Home Equity Loan and a Mortgage Loan?

Mortgage loans are those that are secured against an immovable property, residential or commercial. On the other hand, home equity loans allow you to access funds by putting up the equity of your house as collateral. 

The following table will give you more clarity on the differences between a home equity loan and a mortgage loan:


Home Equity Loan

Mortgage Loan

Interest rate

Lesser than the personal loan

Lesser than Home Equity Loan

Loan amount

60% of the total net value

Up to 70% of the market value

Interest Type



Maximum Loan Tenure

15 years

15 years

Calculation of Home Equity Loan

To calculate the equity or value of your house, lending institutions usually use this formula: 

Value or Equity= Market Value of the House – Outstanding Loan Amount

This can be explained with the help of an example. Suppose the market value of your house is ₹60 Lakhs, and you have an outstanding home loan of ₹40 Lakhs. So, the equation will now read: 

Value/Equity= ₹60,00,000 - ₹40,00,00

In other words, the home equity loan value will be ₹20 Lakhs. But if you don’t have any outstanding home loans, the home loan equity amount will be the same as the market value of your property. 

Home Equity Loan FAQs

How can I use the home equity loan?

You can use the lump sum amount of a home equity loan to meet your big-ticket personal expenses.


Is there a cap on the maximum amount of home equity loans?

Lending institutions provide home equity loans according to the market value of your property. If you have any outstanding home loan obligations, they will be deducted from the market value of your property. 


So, the maximum amount of a home equity loan depends on the market value of your property and any outstanding obligations. 


Do I need to compulsorily pledge my house as collateral for availing a home equity loan?

Yes, the home equity loan can only be availed against the equity of a house.


Does a home equity loan provide any tax benefits?

No, there are no tax benefits on a home equity loan.


Does a home equity loan require a good credit score?

No, being a secured loan, this loan doesn’t come with the mandatory requirement of having a good credit score.


Are home equity loans tax deductible?

Yes, as per Section 24(b) of the Income Tax Act of 1961, home equity loans allow you to enjoy tax deductions on the interest. However, it is subject to the condition that the borrowed amount is used for the purchase, construction, or renovation of your house.


How much home equity loan can I get?

You can get a maximum of 60% of the total net value of your house as a home equity loan.


What is the example of a home equity loan?

Consider that the market value of your house is ₹1 Crore, on which you have an existing loan obligation of ₹60 Lakhs. So, you can get a home equity loan on the equity of your house, i.e., ₹40 Lakhs.


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