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Before you can understand what home equity loans are,
you must first know what equity is. According to the United
Federal Reserve Board, equity is the difference between
the fair market value (appraised value) of the home and
the outstanding mortgage balance. So if your current mortgage
balance is $50,000, and your house is appraised at $100,000,
you have $50,000 in equity.
Financially, equity in a home represents the portion
of a home owned by a individual. When the house is sold
the money is given to the homeowner to do with as they
please.
A home equity loan, is a creative type of loan backed
by the amount of equity a person has in their home. These
types of loans are sometimes called second mortgages and
are very common. It is important to understand that when
a home equity loan is taken out on a property, the amount
that is borrowed against no longer belongs to the individual.
It belongs to the lender who has "loaned" you
your money.
Home equity loans can be taken out from either the bank
that provided the mortgage or by another financial institution.
It is important to know that defaulting on either payment
can result in foreclosure. Therefore, be sure that you
completely understand the terms of your home equity loan.
Some of the many uses of a home equity loan are presented
on our review of home
equity loans.
Home Loan Resources Index
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