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.
There is a specific difference between a home equity loan and a Home Equity
Line of Credit (HELOC). A HELOC is a line
of revolving credit with an adjustable interest rate whereas a home equity loan
is a one time lump-sum loan, often with a fixed interest rate.
When considering a loan, the borrower should be familiar with the terms
recourse and nonrecourse loan, secured and unsecured debt, and dischargeable and
non-disc A
US home equity loan may be a recourse loan for which the borrower is personally
liable. This distinction becomes important in foreclosure since the borrower may
remain personally liable for a recourse debt on a foreclosed property.
Home equity loans are secured loans. "The debt is thus secured against the
collateral — in the event that the borrower defaults, the creditor takes
possession of the asset used as collateral and may sell it to satisfy the debt
by regaining the amount originally lent to t^ Credit
card debt is an unsecured debt such that no asset has been pledged as collateral
for the loan. Using a home equity loan to pay off credit card debt essentially
converts an unsecured debt to a secured debt.
When deciding upon a type of loan, the borrower should also consider if the
debt is dischargeable in bankruptcy. For instance, US student loans are
"practically non-dischargeable in ba^
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