Often, you will hear the term "home equity loan." Sometimes, this can be a little confusing to some. Home mortgage issues often are. But it is important to understand home loan terms, and to be aware of what certain home mortgage agreements entail.

What is home equity?

Before we proceed with the basics of the home equity loan, we should define home equity. I think Investorwords.com offesr a very nice definition of home equity:

The current market value of a home minus the outstanding mortgage balance. Home equity is essentially the amount of ownership that has been built up by the holder of the mortgage through payments and appreciation.

Home equity loan

Therefore, a home equity loan is the amount of money a lender gives you based on how much of your house you actually "own." If your house was worth $195,000, but you still owed $130,000 on it, the home equity involved would be $65,000. This $65,000 could be given to you as a lump sum, in what is known as a second mortgage, or as a home equity line of credit.

Tomorrow, we will look at the basics of a home equity line of credit.

Tags: home equity, home equity loan, home loan, finances,
home mortgage