Sponsored Content: If you’ve built up enough equity in your home — you might consider taking out a home equity loan to fund remodeling projects.

But it’s important to know what these loans entail and how best to use them to pay for home remodeling.

Let’s dive deeper into what a home equity loan from Discover^® looks like, and why you may want to use one for your renovation plans.

What is a home equity loan?

A home equity loan is a second mortgage that homeowners take out by borrowing against the equity built up in their homes.

Say your home is worth $300,000, and your primary mortgage balance is $200,000. That means you have $100,000 worth of equity.

Home equity loans are repaid in monthly installments at a fixed interest rate over a set period of time (ex. 15 or 30 years). Lenders will typically let homeowners borrow up to 90% of their equity.

Some lenders might charge closing costs, but Discover does not require borrowers to pay charges at closing. Once a loan closes, homeowners receive a lump sum cash distribution that can be used to fund renovation projects.

Why use a home equity loan for remodeling?

• Low interest rates. Compared to other financing options, home equity loans typically come with low rates because they are secured by collateral: the borrower’s home.
• Tax deductions. You might be able to deduct the interest paid on home equity loans for home improvement from your taxes. Consult your tax advisor for more information about your specific circumstances.
• Increased home value. Home equity loans might pay for themselves if the renovations they fund end up increasing the property’s value.

How do you use a home equity loan for remodeling?

• Calculate the equity you’ll need. You should figure out how costly your home remodel will be and borrow only the amount you need.
• Plan for closing costs. Home equity loans may come with closing costs like appraisal, origination, underwriting and insurance fees.
• Understand risks involved. Home equity loans are secured by a property, which may be subject to foreclosure if the loan isn’t repaid.

Home equity loans can be attractive options if borrowers are seeking a lump sum of cash upfront. With a second mortgage, you might be able to use the equity you’ve accrued to improve your living space and increase your home’s value.