How is a home equity loan typically secured?

A home equity loan is typically secured by the homeowner's equity in their property. This means that the amount loaned is based on the difference between the current market value of the home and the outstanding balance on the mortgage. Essentially, the equity represents the portion of the home that the homeowner actually owns outright.

When a lender issues a home equity loan, they are using the home itself as collateral. This secures the loan because if the homeowner defaults on repayments, the lender has the right to take possession of the property through a process known as foreclosure. The presence of equity gives lenders confidence that they have a tangible asset backing the loan, which generally results in lower interest rates compared to unsecured loans.

Other options may relate to financial status or projections, but they do not serve as the securing mechanism for a home equity loan. Personal credit history does play a role in determining the terms of the loan, but it does not secure it. Similarly, the value of a cosigner's assets or the property’s future value are not direct forms of security for the loan itself. The equity rooted in the homeowner's investment is the core factor that secures this type of financial product.