Homeowner's Equity Account

Credit line offered by banks, savings and loans, brokerage firms, credit unions and other mortgage lenders allowing a homeowner to tap the built-up equity in his or her home. Such an account is, in effect, a Revolving Credit second mortgage, which owners can access with the convenience of a check. Most lenders will provide a line of credit up to 70% or 80% of the appraised value of a home, minus any outstanding first mortgage debt. Some home equity lenders will lend as much as 125% of the home's value, although this is risky for both the lender and the borrower; if the borrower defaults, he must come up with 25% more equity than his home is worth to satisfy the loan. When a homeowner receives the loan, a Lien is automatically placed against the house and removed when the loan is repaid. A homeowner's equity account often carries a lower interest rate than a second mortgage; typically, the rate is tied to the Prime Rate. Often, a lender will offer a below-market rate at or below the prime rate for some introductory period of six months to a year to entice the borrower. After that, many banks charge between the prime rate and two percentage points over prime for the long term. Most programs require an initial sign-up fee, an annual maintenance fee and additional fees called Points when the credit line is tapped. Interest is tax deductible up to $100,000 married filing jointly, no matter how loan proceeds are used. Interest on loans exceeding $100,000 may be deductible if the proceeds are used to purchase investments or for business purposes. Consult a tax specialist for the latest information on what qualifies as a deduction. See also Second Mortgage Lending.

Credit line offered by banks and brokerage firms allowing a homeowner to tap the built-up equity in his or her home. Such an account is, in effect, a Revolving-Credit second mortgage.