What is Home Equity Debt?
Whenever you use the equity in your home to secure a loan you have home equity debt. Your home has been pledged as security for repayment of the debt. If you fail to pay, the lender can take your home by initiating foreclosure proceedings. Home equity debt can be acquired using several types of loans.
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Identification
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One way to obtain home equity debt is when you first buy your home. If you finance a balance, you have home equity debt.
Features
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If you decide to take out a home equity line of credit using the equity in your home this is also considered home equity debt. A home equity line of credit is a revolving line of credit when can be used over and over again. Some creditors will lend between 80 and 100 percent of the appraised value minus any current mortgages or liens.
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Considerations
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Another type of home equity debt is a home equity loan. This is when you get a loan based on the equity in your home. These loans can be amortized or interest only and they cannot be used after you pay them off.
Types
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Any type of second mortgage on your property is also considered home equity debt. Some consumers will take out second mortgages for home improvement or to consolidate their debts.
Function
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When you decide to refinance your first mortgage you can consolidate debts, receive a lower interest rate and take additional cash. This also helps you establish home equity debt. The entire balance is considered home equity debt.
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