Short Answer: Home equity is the difference between your home’s appraised value and what you still owe on a mortgage. Second mortgages are higher interest but good for emergency situations.
Home Equity = The % of your home that you own versus the purchase price. For example, if you bought a home for $200,000, and had paid off $100,000 of the mortgage (principal component) you would have equity (i.e. an asset of $100,000). This does not take into consideration price movements of a home. Continuing this example, if you sell your $200,000 home for $215,000, you will pocket $115,000 and the remaining $100,000 will go to the bank to finish paying off your mortgage. Remember, you don’t own your home until your mortgage balance = $0.
2nd mortgages = In the context of a “home equity loan,” i.e. your example, you could get a home equity loan for some percentage of the equity you have in the home would not be for all of it. The interest rate on this tends to be higher than a mortgage, but functionally the same (except that now you have two mortgages to pay off). it is certainly a useful tool to be aware of, but most likely an option for emergencies.
Finn’s Fact: A second mortgage interest rate is higher than a first mortgage, but still substantially lower than a personal bank loan or credit card payment. Upfront closing costs must still be covered in second mortgage situations.