Home equity is the calculation of a home's current market value minus any liens attached to that home.

Home equity is the value of a homeowner’s interest in their home. However, an owner can leverage their home equity as collateral to secure either a home equity loan or a home equity line of credit (HELOC), or fixed-rate HELOC, which is a kind of home equity loan and HELOC hybrid. An owner can leverage their home equity in the form of collateral to secure either a home equity loan, a traditional home equity line of credit (HELOC), or a fixed-rate HELOC. A home equity loan, sometimes referred to as a second mortgage, usually allows you to borrow a lump sum against your current home equity for a fixed rate over a fixed period of time. If the market value of the house remains constant over the next two years, and $5,000 of mortgage payments are applied to the principal, the owner would possess $25,000 in home equity at the end of the two year period.

Home Equity

A home equity loan is a consumer loan secured by a second mortgage, allowing homeowners to borrow against their equity in the home.

Interest on Home Equity Loans Often Still Deductible Under New Law

Table of Contents
What Is a Home Equity Loan?
How a Home Equity Loan Works
Special Considerations
Fixed-Rate Loans vs. HELOCs
Pros and Cons Home equity loans come in two varieties—fixed-rate loans and home equity lines of credit (HELOCs).
Fixed-rate home equity loans provide one lump sum, whereas HELOCs offer borrowers revolving lines of credit.
Essentially, a home equity loan is akin to a mortgage, hence the name second mortgage. A home equity loan—also known as an equity loan, home equity installment loan, or second mortgage—is a type of consumer debt. A home equity loan can be a good way to convert the equity you’ve built up in your home into cash, especially if you invest that cash in home renovations that increase the value of your home. Consolidating that debt to a home equity loan at a rate of 4% with a term of five years would actually cost you more money if you took all five years to pay off the home equity loan.

Home Equity Loan

Mortgage equity withdrawal is the total of the equity taken out by homeowners from the equity they paid into their homes.

A mortgage equity withdrawal is a piece of economic data measuring the net amount of cash equity that consumers withdraw from their homes through home equity loans or lines of credit and cash-out refinances. A mortgage equity withdrawal is a piece of economic data measuring the net amount of cash equity that consumers withdraw from their homes through home equity loans or lines of credit and cash-out refinances. An interesting feature of mortgage equity withdrawal when applying it to economic forecasting is calculating what percentage of the total equity withdrawal goes directly into consumer spending and what percentage is used to pay down existing consumer debt. Mortgage equity withdrawal is a piece of economic data that aggregates the amount of cash that a nation's homeowners withdraw from their home equity through refinancing or lines of credit. When consumers take out home equity loans or other forms of financing against the equity they have put into their homes through a mortgage, they are freeing up their assets for use with other expenses.

Mortgage Equity Withdrawal

Negative equity occurs when the value of real estate property falls below the outstanding balance on the mortgage used to purchase that property. 

Negative equity occurs when the value of real estate property falls below the outstanding balance on the mortgage used to purchase that property. Negative equity is not to be confused with mortgage equity withdrawal (MEW) is the removal of equity from the value of a home through the use of a loan against the market value of the property. If the market value of that home the next year tumbles to $275,000, the owner has negative equity in the home because the mortgage attached to the property is $75,000 greater than what it would sell for in the current market. When the opposite happens—when current market value of a home falls bellows the amount the property owner owes on their mortgage—that owner is then classified as
having negative equity in the home. Negative equity occurs when the value of real estate property falls below the outstanding balance on the mortgage used to purchase that property.

Home Equity

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Terms in Home Equity

Home Equity

Home Equity Loan

Mortgage Equity Withdrawal

Negative Equity