Home-Equity Loan

What is a '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.

RELATED TERMS
  1. Combination Loan

    1. A transaction consisting of two separate loans for the same ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against ...
  3. 100% Mortgage

    A mortgage loan in which the borrower receives a loan amount ...
  4. High Ratio Loan

    A loan of any type for which a relatively small down payment ...
  5. Mortgage Interest

    The interest charged on a loan used to purchase a residence. ...
  6. Future Advance

    A clause in a mortgage which enables the lender to advance funds ...
Related Articles
  1. Professionals

    Mortgage Financing 2

    Mortgage Financing 2
  2. Retirement

    Reverse Mortgage Or Home-Equity Loan?

    If you have equity in your home and need more cash in retirement, a reverse mortgage – or home-equity loan or line of credit – is an obvious option.
  3. Options & Futures

    Home-Equity Loans: What You Need To Know

    We shed light on why consumers decide to use this form of debt and whether it is a good alternative.
  4. Credit & Loans

    Why It’s So Hard to Get Small Mortgage Loans

    Finding a lender to provide a mortgage loan for less than $50,000: It's a challenge faced by a surprising number of people, and one that's often tough to solve.
  5. Options & Futures

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  6. Home & Auto

    The Smartest Way to Tap Your Home Equity

    Using your home as a source of funds can be a smart choice in some situations. Just be sure to carefully run the numbers.
  7. Credit & Loans

    Using Home Equity Loans For Debt Consolidation

    A home equity loan or line of credit is a convenient way to consolidate debts, cut your interest rate and gain a tax deduction. But there are big risks.
  8. Retirement

    5 Top Alternatives To A Reverse Mortgage

    If you have substantial home equity and don't want to do a reverse mortgage to tap it for retirement expenses, cost out these viable alternatives.
  9. Credit & Loans

    Refinancing vs. a Home-Equity Loan: How to Decide

    If you want to pay off debt, make home improvements or just get a better interest rate, you need to know exactly what these terms mean.
  10. Home & Auto

    How To Afford A Second Home

    Buying a second home, even if it’s relatively affordable, takes careful budgeting and planning. Here's how to do it.
RELATED FAQS
  1. How does the loan-to-value ratio affect my mortgage payments?

    Understand what the loan to value ratio is, how the ratio is calculated and learn how it has an impact on your mortgage payments ... Read Answer >>
  2. What are the differences between a home equity line of credit (HELOC) and a home ...

    Learn the differences between a home equity loan and a home equity line of credit, and find out how to select the one that ... Read Answer >>
  3. What are the advantages of using a home-equity debt consolidation loan?

    Learn how to use a home equity loan for debt consolidation, and find out how to take advantage of a home equity loan's lower, ... Read Answer >>
  4. What are the typical requirements to qualify for closed end credit?

    Learn what closed-end credit is, and the various requirements that borrowers must meet in order to obtain a closed-end credit ... Read Answer >>
  5. What’s the difference between a mortgage lender and a mortgage servicer?

    Buying a home is an exciting and confusing process. Once the loan is secured, it's important to know who gets the payment: ... Read Answer >>
  6. Is a home equity loan a good way to pay off my credit card debt?

    Learn about the characteristics of a home equity loan and how it can be used to help you pay off your outstanding credit ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center