How Long Are Home Equity Loan Terms? Exploring Your Repayment Options

If you’re considering tapping into your home equity, you may be wondering – how many months is a home equity loan? Home equity loans allow homeowners to leverage the equity in their home to get a lump sum of cash. These loans last anywhere from 5 years (60 months) to 30 years (360 months), giving you flexible repayment options.

What is a Home Equity Loan?

A home equity loan is a type of second mortgage where your home is used as security. It’s like a regular first mortgage in that you borrow a lump sum and make fixed monthly payments to pay it back over a certain amount of time. How much of a loan you can get depends on how much equity you have.

Equity is calculated as

Home Value - Amount Owed on Mortgage = Available Home Equity

Let’s say your home is worth $300,000 and you owe $180,000 on the mortgage. This means you have $120,000 in equity ($300,000 – $180,000 = $120,000). You may be able to borrow up to 85% of your available equity thanks to some lenders.

Home Equity Loan Term Lengths

Home equity loans have terms that tell you how long you have to pay back the loan plus interest. Here are the typical term lengths available:

• 5 years (60 months): This is the shortest time to pay back the loan, so your monthly payments will be higher. You’ll pay off the loan faster, though, and pay less in interest.

• 10 years (120 months) – 10-year terms are popular for balancing affordable monthly payments with reasonably quick repayment.

• 15 years (180 months) – 15-year terms offer more affordable monthly payments by extending the repayment period.

• 20 years (240 months) – Monthly payments are even lower with a 20-year term. This can make larger loan amounts more manageable.

• 30 years (360 months) – A 30-year term provides the lowest monthly payment. But you’ll pay more in total interest over the life of the loan.

How Do I Choose the Right Term Length?

Consider these factors when choosing a home equity loan term:

• Your budget – Make sure you can afford the monthly payments. Longer terms have lower payments.

• Your goals – Shorter terms allow you to pay off the loan faster. Longer terms provide more budget flexibility.

• Your financial situation – Your income, expenses, and other debts impact what monthly payment you can manage.

• Total interest costs – Shorter terms mean less interest paid over the life of the loan.

• Prepayment flexibility – Many lenders allow you to pay off a home equity loan early with no penalty.

Other Home Equity Options to Consider

Along with term lengths, look at other home equity borrowing options:

• Home Equity Line of Credit (HELOC) – A HELOC works like a credit card, with an open line of credit you can access as needed. You only pay interest on what you use.

• Cash-Out Refinance – With a cash-out refinance, you get a new mortgage for more than you owe and receive the difference in cash.

Weighing the Pros and Cons

Compared to other home equity options, some key advantages of a home equity loan include:

Pros

• Fixed interest rate and monthly payments
• Typically easier to qualify for than a HELOC
• Fast access to a lump sum

Cons

• Higher interest rates than a HELOC
• Pay interest on the full amount borrowed
• Lengthy application process

While a HELOC offers lower rates and flexible borrowing, a home equity loan provides payment predictability. Look at all the options to decide what best suits your financial situation and goals.

How Many Months Should Your Home Equity Loan Be?

The ideal home equity loan term depends on your unique needs and circumstances. Think about your objectives, budget, and how quickly you want to pay off the loan. A loan officer can help you compare term lengths and determine what works best for your situation. While 30-year terms are most common, don’t assume it’s your only or best choice.