What defines an equity loan?

An equity loan is defined as a loan that is based on the difference between the market value of a property and the outstanding mortgage amount against it. This is often referred to as home equity, which signifies the portion of the property that the homeowner truly owns, and can be accessed through loans such as a home equity line of credit or a home equity loan. The market value represents the current price at which the property could be sold, while the mortgage amount is the outstanding balance that remains owed to the lender. Therefore, this difference, or equity, is used by lenders to determine how much can be borrowed against the home.

This type of loan allows homeowners to tap into the value of their property for various purposes, such as home improvements, consolidating debt, or funding education. The other options do not accurately define an equity loan, as they either pertain to different aspects of financing or focus on unrelated criteria such as income level or closing costs.