A home equity loan is a type of mortgage where you use the equity in your home as security for a loan.
Equity is the difference between the value of your property and the amount you owe on the property.
Property Value – Amount of Mortgage = Equity
A home equity loan often requires no qualifying as the loan is based strictly on the value of the home and amount of equity rather than on the borrowers themselves.
Home equity loans are sometimes structured as second mortgages. This means the loan is registered on the title of the property in second position behind the existing first mortgage. There can be some advantages to borrowing money in this way; mainly the first mortgage can remain in place without incurring any penalties for breaking the existing term.
If a home equity loan is structured as a second mortgage you will usually see a higher interest rate. This is due to the increased risk of loss associated with being second payable in the event of a default or foreclosure.