UK Accounting Glossary
A home equity loan is a broad term for credit extended to a homeowner secured by equity in residential real property. The home equity loan can be an open-ended, revolving line of credit. Such a home equity loan would more precisely be called a home equity line of credit, or HELOC. A home equity loan can also be a loan with a fixed amount of principal. This type of home equity loan would typically be called a second mortgage, assuming there is a first mortgage that is senior to it. Two features of the home equity loan make it attractive as a form of credit. First, in the US, interest paid on a home equity loan is tax-deductible. Second, the home equity loan tends to have a lower rate of interest than other forms of credit available to a given borrower, such as personal loans or credit cards, because the risk to the creditor is lower because the home equity loan is secured a mortgage on by real property.
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This glossary post was last updated: 9th February 2020.