home equity loan
Word by Word Definitions
: one's place of residence : domicile
: the social unit formed by a family living together
: to or at one's place of residence or home (see 1home 1a)
: to a final, closed, or ultimate position
: to or at an ultimate objective (such as a goal or finish line)
: of, relating to, or being a place of residence, place of origin, or base of operations
: prepared, done, or designed for use in a home (see 1home)
: operating or occurring in an area that is a headquarters or base of operations
: to go or return to one's place of residence or origin : to go or return home (see 1home)
: to return accurately to one's native area of place of birth or origin from a distance : to return home
: to move to or toward an objective by following a signal or landmark
: justice according to natural law or right
: something that is equitable
: the money value of a property or of an interest in a property in excess of claims or liens against it
: money lent at interest
: something lent usually for the borrower's temporary use
: the grant of temporary use
Financial Definition of HOME EQUITY LOAN
What It Is
How It Works
Home equity loans are very similar in concept to traditional mortgages. For example, home equity loans generally must be repaid over a fixed period. Some lenders may offer fixed rates on these loans, others might offer variable rates.
Common home equity loan fee types:
Early pay-off fees
In some cases, the lender might charge a fee if the borrower prepays the loan. And because the loan is secured by a house, if the borrower defaults, the lender may foreclose on the house.
While home equity loans are similar in many ways to mortgages, it is important to note that they are not the same. Home equity loans create a lien on the borrower's home -- commonly second position liens -- and can reduce its overall equity. Another difference is that home equity loans and lines of credit are typically for a shorter term than traditional mortgages.
A home equity loan is also not the same as a home equity line of credit (HELOC). A HELOC is a line of revolving credit with an adjustable interest rate that allows the borrower to choose when and how to borrow against the equity of their house. Home equity loans are single, lump-sum loans with a fixed-interest rate.
Why It Matters
Home equity loans can be viable alternatives to credit cards or other high-interest, unsecured loans. Mortgage interest is tax deductible, making the interest rates on home equity loans sometimes lower than they appear when one considers the tax savings.
However, not all home equity loans are created equal. Borrowers are well served to compare fees, interest rates, and repayment terms among lenders. After all, when a borrower defaults, his or her home could very well end up belonging to the bank for good.
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