A mortgage backed loan in which the borrower receives the loan in cash is called as an equity loan. In general, the lender secures the loan against borrower’s real estate, already owned outright.
For instance, if a person owns a home valued at $100,000, but does, not at this time, have any mortgage on it, then he/she may take an equity loan at 80% loan to value (LTV) or $80,000 in cash in exchange for a mortgage on the title.
Most lending institutions ask the borrower to pay back only the interest part of the loan each month (calculated each day, and compounded to the loan once each month). The borrower is eligible to apply any surplus funds to the outstanding loan principal at any time, lowering the amount of interest calculated from that day onward.
Besides, there are some loan products which allow the borrower to redraw cash up to the original loan to value, thereby extending the life of the loan beyond the original loan term.
The interest rate on equity loans, are much lower than unsecured loans, for instance, credit card debt. The reason behind this is: while equity loans involve collateral, and credit card debt does not keep any collateral.