The difference between the appraised value
of a property and the debt that is owing against it.
A home equity loan (sometimes abbreviated HEL) is a
type of loan in which the borrower uses the equity in their home as collateral.
These loans are sometimes useful to help finance major home repairs, medical bills
or college education. A home equity loan creates a lien against the borrower's
house, and reduces actual home equity.
Home equity loans are most commonly second position
liens (second trust deed), although they can be held in first or, less commonly,
third position. Most home equity loans require good to excellent credit history,
and reasonable loan-to-value and combined loan-to-value ratios. Home equity loans
come in two types, closed end and open end.
Both are usually referred to as second mortgages, because
they are secured against the value of the property, just like a traditional mortgage.
Home equity loans and lines of credit are usually, but not always, for a shorter
term than first mortgages. In the United States, it is sometimes possible to deduct
home equity loan interest on one's personal income taxes.
