A Home Equity Loan
is a type of loan where the borrower uses the equity in their home as collateral. These type of loans are sometimes useful for families to help finance home repairs, medical bills or college educations. A home equity loan creates a lien against the borrower's house.
Home equity loans are most commonly second position liens, 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, 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.
