home equity loan is a financial maneuver undertaken by a home owner to lower mortgage payments or reduce exposure to other mounting debts. When undertaken, the homeowner takes equity (portion of the house that is owned by the homeowner) from their home and uses it as collateral. The borrower receives a cash loan with a set interest rate. If the borrower/homeowner fails to meet the payment obligations of the loan, they underlying bank or creditor will seize the equity in the individual’s home.
an individual purchases a home, they typically take a mortgage or loan out to
help pay for it. As the mortgage is paid off, the individual accrues equity or
ownership of the asset. Home equity loans, therefore, use this equity to
guarantee the fulfillment of the loan. If the loan requirements are not paid
and the individual defaults, the bank or lending
institution will possess ownership of the equity in the home. The equity,
therefore, represents a fungible asset that has a real worth.
Home equity loans enable individuals to increase
their income through the obtaining of cash from a bank or lending institution.
The presence of collateral (the equity) allows the bank to offer the landowner
capital. The influx of funds allows an individual to pay for other primary
costs such as education, medical bills, and home repairs.
In essence, A home equity loan is a second
mortgage; the loan is secured against the value of the property.
Home equity loans are offered to the homeowner in a one-time lump sum. The
interest rate attached to the loan is fixed and similar to a mortgage, requiring