The Basics of a Home Equity Loan
is a home equity loan?
A home equity loan is a loan that uses your home as collateral.
Your home equity is the part of your home that you actually own
and this is the guarantee for your loan.
Your home equity is calculated by taking the current value of your
home and subtracting your mortgage. For example, if your home is
worth $150, 000 and you have a $100,000 mortgage, you have $50,000
of equity in your home. A home equity loan allows you to borrow
money using your equity of $50,000 as security for the loan.
A home equity loan, often called a second mortgage, reduces your
equity or ownership in your home. Since your home guarantees your
loan, if you default on the payments, you can lose your home.