Home Equity Loan

Home Equity Loan

A loan in which the one borrows against the value of one's home. That is, the collateral of a home-equity loan is one's house. The amount in these loans is generally the difference between the homeowner's equity in the house and the market value of the house. The homeowner receives the amount of the loan in a lump sum, and may use it to finance other purchases or ventures. If a home-equity loan is not paid off, the lender may take possession of and sell the house in order to pay for the loan; this can occur even if the homeowner continues to make payments on his/her mortgage. These loans generally have variable interest rates, which are nonetheless still lower than most other lines of credit. Home-equity loans are sometimes called second mortgages or equity loans. See also: Reverse mortgage.

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Home equity loan. A home equity loan, sometimes called a second mortgage, is secured by the equity in your home.

You receive the loan principal, minus fees for arranging the loan, in a lump sum. You then make monthly repayments over the term of the agreement, just as you do with your first, or primary, mortgage.

The interest rates on home equity loans are generally lower than the rates on unsecured loans. However, when you borrow against your equity you run the risk of foreclosure if you default on the loan, even if you have continued to make the required payments on your first mortgage.

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Home Equity Loan

Same as Second Mortgage.