Home-Equity Loan

AAA

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".

INVESTOPEDIA EXPLAINS '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. All-In-One Mortgage

    A mortgage loan that combines the features of a checking account, ...
  2. Asset-Backed Security - ABS

    A financial security backed by a loan, lease or receivables against ...
  3. Lien

    The legal right of a creditor to sell the collateral property ...
  4. House Poor

    A situation that describes a person who spends a large proportion ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), ...
  6. Line Of Credit - LOC

    An arrangement between a financial institution, usually a bank, ...
Related Articles
  1. Home & Auto

    When Owning Your Home Doesn't Pay

    You may think it's better to own than rent, but there are many overlooked costs that could change your mind.
  2. Taxes

    Tax Deductions On Mortgage Interest

    If you're a homeowner, this is one item you want to understand and use on your return.
  3. Credit & Loans

    How HELOCs Can Hurt You

    A home equity line of credit is a convenient way to borrow money. But, there are things to be cautious about before you get into trouble.
  4. 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.
  5. Options & Futures

    Home-Equity Loans: The Costs

    Learn the factors to consider when comparing the different programs offered by various lenders.
  6. Credit & Loans

    Protect Yourself From HELOC Fraud

    Identity thieves are using home equity lines of credit to commit their crimes.
  7. Retirement

    I sold my house. Can I exclude the gain from my income?

    Generally, you are required to include the gain from the sale of your home in your taxable income. However, if the gain is from your primary home, you may exclude up to $250,000 ($500,000 for ...
  8. Retirement

    Mortgage Asset-Liability Management Made Easy

    Should you refinance your mortgage to purchase other assets? Learn how to weigh your risk.
  9. Options & Futures

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  10. Options & Futures

    The Reverse Mortgage: A Retirement Tool

    Discover another way to fund your retirement without having to make payments on a loan.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center