HOME EQUITY LOANS
A home equity loan is a mortgage that uses the equity in your home as the required security for a loan. Equity is defined as the difference between the value of your property and the amount owed on the property.
Property Value - Amount of Mortgage = Equity
Home equity loans in most cases require no qualifying. It is based solely on the value of the home and amount of equity, rather than on the borrowers themselves.
They are sometimes structured as second mortgages. This means the loan is registered on the title of the property in second position to the existing mortgage. There can be advantages to borrowing money this way; mainly, the initial mortgage remains in place without resulting in any penalties for breaking the existing term.
If a home equity loan is structured as a second mortgage you will often see a increased interest rate. This is because of the increased risk of loss associated with being second payable in the event of a default or foreclosure.