Home Equity Loan

A home equity loan allows you to tap into your home's built-up equity, which is the difference between the amount that your home could be sold for and the amount that you still owe.

Homeowners often use a home-equity loan for home improvements, to pay for a new car, or to finance their child's college education. The interest paid is usually tax-deductible.

Because the loan is secured by your home's equity, if you default, the bank may foreclose on your house and take ownership of it.

This type of loan is sometimes referred to as a second mortgage or borrowing against your home.

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.

A form of open-end credit in which the home serves as the consumer’s collateral.

A mortgage on the borrower's principal residence, usually for the purpose of making home improvements or debt consolidation.

A loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.