Defnition
A home equity loan is a secured loan obtained by a homeowner that uses the home as collateral through a secondary lien. This allows the homeowner to convert the equity they have in their property into cash.
Analysis
A home equity loan allows homeowners to tap into the equity that they have built up in their homes. Home equity loans are commonly used to pay off higher interest debts or other situations when homeowners need a large lump some of money.
Home equity loans are very similar to home equity lines of credit (HELOC’s). However, with a home equity loan, there is no revolving line of credit. The loan is a regular installment loan, much like a mortgage, and normally comes with a fixed interest rate.
Home equity loans are also commonly referred to as second mortgages, because the home is used as collateral. To qualify for a home equity loan, the homeowner generally needs an adequate credit score and credit history.
