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. Personal Finance

    Financing Basics For First-Time Homebuyers

    If you're looking to get your first mortgage, there are many financing options available.
  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. Investing

    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. Personal Finance

    Reduce Interest With An All-In-One Mortgage

    "Offset" mortgages combine a checking account, home-equity loan and mortgage into one account.
  5. Personal Finance

    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.
  6. Investing

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  7. Investing

    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

    How Does A Reverse Mortgage Work?

    The basics of getting a reverse mortgage, with detailed information on how to qualify and what to watch out for.
  9. 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.
  10. Personal Finance

    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.
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 >>
Trading Center