A home equity loan is a loan in which the borrowers use the equity in their homes as collateral. Equity is the difference between how much the home is worth and how much you owe on the mortgage (or mortgages, if you have more than one on the property). Collateral is property that you pledge as a guarantee that you will repay a debt. These loans are sometimes useful to help finance major home repairs, medical bills or college educations.
A home equity loan (or line of credit) is a second mortgage that lets you turn equity into cash, allowing you to spend it on home improvements, debt consolidation, college education or other expenses.
There are two types of home equity debt: home equity loans and home equity lines of credit, also known as HELOCs. Both are sometimes referred to as second mortgages, because they are secured by your property, just like the original, or primary, mortgage.
Home equity loans and lines of credit are usually for a shorter term than first mortgages. Some people are able to deduct home equity loan interest on their income taxes.