Home Equity Debt

Home equity debt is a loan that is secured by the borrower’s home equity (the home’s fair market value less the amount of money still owed on the home). Broadly, there are two types of home equity debt: a home equity loan and a home equity line of credit. There are important differences between these two types of home equity debt. Home equity debt in the form of a home equity loan is a type of home equity debt that works like a first mortgage, with the loan paid out in a lump sum and repayment amortized over the length of the loan. Home equity debt in the form of a home equity line of credit (HELOC) is a type of home equity debt that works much like a credit card with a revolving balance and variable interest rate.