Home Equity Loan
A Home Equity Loan is a loan secured by
a second mortgage which allows home owners to borrow against
their "equity" (the financial value of a property over
and above the amount the person owes on mortgages) in the home.
The loan is based on the difference between the homeowner's
equity and the home's current market value which will be calculated
by an appraisel. The mortgage also provides collateral for an
asset-backed security issued by the lender and sometimes tax
deductible interest payments for the borrower. A Home Equity
Loan is sometimes referred to as an "equity loan", "second mortgage"
or "Home Equity Line of Credit (HELOC)".
A home-equity loan is basically a line
of credit secured by your home. When the line of credit
is drawn down, the bank or financial institution providing it
places a second mortgage loan on your home until the loan is
paid off, after which then you can use the loan to finance other
purchases. However, if the loan is not paid off, your home could
be sold to pay off the remaining debt. Interest rates on such
loans are usually adjustable rather than fixed and lower than
standard second mortgages or credit cards.
