Home Equity Credit

Loan secured by equity value in a borrower's home. A home equity loan, also called an Equity Credit Line allows the home-owner to tap into the accumulated equity in his home-the difference between the current fair market value and the amount secured by a first mortgage-by writing checks that are drawn against a line of credit. Most home equity loans require an initial sign-up fee and an Appraisal of the property to determine the Loan-To-Value Ratio. Equity credit policies vary regionally, but a common practice is to set the upper limit on equity lines at an amount equal to 80% of the current market value of a home, less the outstanding mortgage balance. Also called home equity line of credit. See also Second Mortgage.