Home Equity Loan

A home equity loan is a loan, or second mortgage, that borrowers take out against the equity in their home. Essentially, the owners are trading their equity for cash, which they pay back to the lender with interest.

These loans are frequently used to consolidate other debt that has a higher interest rate (like credit card debt), or to pay for home repairs or other expensive items.

The interest paid on a home equity loan is tax-deductible, just as it is on a first mortgage. Care should be taken before getting a second mortgage as it could put the borrower at risk for being foreclosed upon if they can’t make the payments.

Another variation on this loan type is the home equity line of credit.

Posted in Refinance Glossary.