An equity loan is a mortgage placed on real estate in exchange for cash to the borrower. For example, if a person owns a home worth $100,000, but does not currently have a lien on it, they may take an equity loan at 80% loan to value (LTV) or $80,000 in cash in exchange for a lien on title placed by the lender of the equity loan. A mortgage is a method of using property as security for the payment of a debt. ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ... Cash usually refers to money in the form of currency, such as bills or coins. ... In law, lien is the broadest term for any sort of charge or encumbrance against an item of property that secures the payment of a debt or performance of some other obligation. ...
Many lending institutions require the borrower to repay only an interest component of the loan each month (calculated daily, and compounded to the loan once each month). The borrower can apply any surplus funds to the outstanding loan principal at any time, reducing the amount of interest calculated from that day onwards. Some loan products also allow the possibility to redraw cash up to the original LTV, potentially perpetuating the life of the loan beyond the original loan term. Cash usually refers to money in the form of currency, such as bills or coins. ...
The rate of interest applied to equity loans is much lower than that applied to unsecured loans, such as credit card debt.
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