Home-Equity Loan


DEFINITION of 'Home-Equity Loan'

A consumer loan secured by a second mortgage, allowing home owners to borrow against their equity in the home. The loan is based on the difference between the homeowner's equity and the home's current market value. The mortgage also provides collateral for an asset-backed security issued by the lender and sometimes tax deductible interest payments for the borrower.

Also known as "equity loan" or "second mortgage".

BREAKING DOWN 'Home-Equity Loan'

A home-equity loan is basically a line of credit secured by your home. When the line of credit is drawn down, the financial institution providing it places a second mortgage loan on your home until the loan is paid off, after which the 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.

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  1. How does a decline in housing prices affect the banking sector?

    When housing prices fall, consumers are more likely to default on their home loans, causing banks to lose money. Also, home ... Read Full Answer >>
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  3. How does a bank determine what my discretionary income is when making a loan decision?

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  4. How do I calculate how much home equity I have?

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