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In a standard home equity loan, the money is loaned in a lump sum and is to be repaid at a fixed interest rate in monthly payments over the life of the loan.
The term or length of a home equity loan is shorter than your average first mortgage on a home. The term on a home equity loan can be from 3 to 15 years whereas a typical first mortgage runs from 15 to 30 years.
It is recommended that you take out the shortest term possible that still allows you to comfortably make monthly payments. The reason for this is the mountain of interest you will save. Compare two home equity loans each for $30,000 at 7.5% - one has a term of 10 years and the other has a term of 20 years. If you can pay back the money in 10 years instead of 20, you will save yourself more than $15,000 in interest - that is more than half of what you are borrowing.
The interest rates on a home equity loan are higher than a mortgage. This is because a home equity lender takes on a greater risk than does a mortgage lender. If your house must be sold, the lender of the first mortgage gets paid before the lender of a second mortgage (home equity loan).
With both home equity loans and lines of credit, if the home is sold, you must pay off the loan in full.
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