What term describes a loan secured by the equity in a home?

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Study for the State Finance Challenge Test. Prepare with quizzes and multiple choice questions, each offering hints and explanations. Enhance your understanding and get ready for success!

Multiple Choice

What term describes a loan secured by the equity in a home?

Explanation:
A loan secured by the equity in a home is a home equity loan. Equity is the portion of the home’s value that you own outright, calculated as the home’s current market value minus any outstanding mortgage balance. When you take a home equity loan, you borrow against that equity, and the loan is secured by the home itself—meaning the lender can foreclose if you don’t repay. These loans are often a second mortgage and are commonly used for big expenses like renovations or consolidating debt, with terms that can be fixed and provide a lump-sum payout. The other terms don’t describe this concept: a liability is any debt in general, not specifically tied to home equity; a premium is an additional charge for insurance or an investment product; a discount is a reduction in price.

A loan secured by the equity in a home is a home equity loan. Equity is the portion of the home’s value that you own outright, calculated as the home’s current market value minus any outstanding mortgage balance. When you take a home equity loan, you borrow against that equity, and the loan is secured by the home itself—meaning the lender can foreclose if you don’t repay. These loans are often a second mortgage and are commonly used for big expenses like renovations or consolidating debt, with terms that can be fixed and provide a lump-sum payout.

The other terms don’t describe this concept: a liability is any debt in general, not specifically tied to home equity; a premium is an additional charge for insurance or an investment product; a discount is a reduction in price.

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