One downside of a home equity loan is that you have to pay upfront closing costs, often totaling two to five percent of your loan amount. In addition, home equity loan rates are higher than mortgage rates (although since you're only borrowing equity, and not refinancing the entire home value, loan amounts and monthly payments are usually lower). In addition, a home equity loan is secured by your home's value. That means if you can't make payments, you could face foreclosure. Finally, there can be a risk of owing more on your home than it is worth if the property value falls. However, with home values rising and demand still strong across most of the country, this scenario seems unlikely for most homeowners.