An equity loan is a mortgage placed on real estate in exchange for cash to the borrower. 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). 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.
The rate of interest applied to equity loans is much lower than that applied to unsecured loans, such as credit card debt.
An equity loan is a mortgage placed on real estate in exchange for cash to the borrower. A loan is a type of debt. All material things can be lent but this article focuses exclusively on monetary loans. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.
A borrower may be subject to certain restrictions known as loan covenants under the terms of the loan.
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