A home equity loan allows you to tap into your home’s built-up equity, which is the difference between the amount that your home could be sold for and the amount that you still owe.
Homeowners often use a home-equity loan for home improvements, to pay for a new car, or to finance their child’s college education. The interest paid is usually tax-deductible but consult with your tax accountant. Because the loan is secured by your home’s equity, if you default, the bank may foreclose on your house and take ownership of it. This type of loan is sometimes referred to as a second mortgage or borrowing against your home.