Homeowners who have purchased in the last year or two might be looking at their situation right now and feeling pretty lucky: They bought before interest rates skyrocketed, and some are sitting on significant home equity.

If you're in that camp, or if you bought before this housing boom, and you're looking to take advantage of that equity, a home equity loan could be a great option. It's a way to borrow a lump sum of money — to fund a home renovation or a debt consolidation, for example — with a relatively low interest rate compared to other forms of debt. And unlike in a cash-out refinance, which was a popular option until recently, you won't have to give up a low interest rate on your primary mortgage.

What is a home equity loan?

A home equity loan is a second mortgage, which means it's a loan against your house that takes a "second position" after your primary mortgage. You can use the money for anything, and you would receive the cash in a lump sum once the loan is approved.

You are essentially taking the equity you have in your home and borrowing against it. This is different from a home equity line of credit, which also draws on your home equity but functions more like a credit card, where you only pay back what you spend. Home equity loans, by contrast, are more rigid: You take out a set chunk of cash all at once and pay it back in fixed payments (with interest) over the life of the loan — usually 20 or 30 years.

There are a lot of reasons borrowers like home equity loans. They're one of the cheapest forms of debt available, they can give you a large sum of money immediately, and their payments are predictable.

Many people have untapped equity in a home. A home equity loan is a great way to access it.

Relatively lower interest rates

Interest rates for just about every type of debt are going up right now, but generally speaking, loans that are secured by your home offer some of the lowest interest rates, especially compared to credit cards or personal loans.

Plus, when you take out a home equity loan, you're locking in the rate, meaning it will stay the same for the life of the loan.

Town & Country Federal Credit Union has a variety of home equity loan options that are personalized to fit your needs and budget. Town & Country offers local decisions and service, and there are no closing costs.

Apply online at tcfcu.com; call 800.649.3495; schedule a personal appointment; or stop by a branch.

View all articles