A derivative is a financial instrument whose price is derived from an underlying asset.
Thus, in very simple words, the price and value of a derivative stem from its underlying asset. The underlying asset can be anything that has some value.
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So the only asset they have is their home equity and the concept is that they can alter a part of that into cash money.
A loan company follows their instructions and will spend as a lump sum, as month...
A loan company follows their instructions and will spend as a lump sum, as month...

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