DEFINITION of ‘Home-Equity Loan’

Home-Equity Loan which the borrower uses the equity of his or her home as collateral .A home equity loan lets you borrow a fixed amount, secured by the equity in your home, and receive your money in one lump sum. The loan is based on the difference between the homeowner’s equity and the home’s current market value. home equity loans have a fixed interest rate, fixed term and fixed monthly payment.A home equity loan is often called a second mortgage because, like your primary mortgage, it’s secured by your property

Home-Equity Loan is different from other loan in the following ways

1)The interest rate you pay on a home equity loan is usually higher than on a first mortgage

2) Unlike with a mortgage, you do not have the option of choosing a variable rate on a home equity loan.

3)The repayment period for a home equity loan can be between 5 and 30 years.

4)Home equity loans are available as fixed rate loans and adjustable rate loans.

5)With a home equity loan, you receive the money you are borrowing in a lump sum payment and you usually have a fixed interest rate. With a home equity line of credit (HELOC), you have the ability to borrow or draw money multiple times from an available maximum amount. Unlike a home equity loan, HELOCs usually have adjustable interest rates