Which financial product allows individuals to borrow against the value of their home for major expenses?

A home equity loan is specifically designed for individuals looking to borrow against the equity they have built up in their home. As homeowners make mortgage payments, they gradually increase their ownership stake (or equity) in the property. A home equity loan enables them to tap into this equity to fund major expenses, such as home renovations, medical bills, or other significant costs.

This type of loan typically involves borrowing a lump sum of money that is repaid over a fixed term, often at a lower interest rate compared to unsecured loans since the loan is secured by the property itself. Home equity loans are advantageous because they often provide access to larger amounts of money over longer repayment periods, making them ideal for significant financial needs.

In contrast, a personal loan is usually unsecured and may not provide the same borrowing capacity or lower interest rates associated with home equity loans. Mortgages, while also related to home ownership, primarily serve the purpose of acquiring a home rather than borrowing against its equity. Lastly, a line of credit allows for borrowing up to a certain limit as needed, but it can be less structured compared to the fixed loan amount and schedule of a home equity loan.