What type of loan allows funds to be borrowed using the homeowner's equity as collateral?

A home equity loan specifically allows homeowners to borrow funds by using the equity in their home as collateral. Equity is the difference between the current market value of the home and the outstanding balance on any existing mortgage. This type of loan is typically used by homeowners who want to access a lump sum of money, often for home improvements, debt consolidation, or significant expenses.

The security for the loan is provided by the home itself, which means that if the borrower fails to repay the loan, the lender has the right to foreclose on the property. This is distinct from other loan types, where different forms of collateral may be used, or no collateral at all is required, as in the case of personal loans. By focusing specifically on the homeowner's equity, a home equity loan provides a structured way for homeowners to leverage their property's value.