If the owner of land has mortgaged it he retains merely an interest which is usually called his equity of redemption (a). He may subsequently either mortgage this interest or transfer it absolutely.

(a) Of course if the mortgagor has not made default he has a legal or contractual right to redeem, and the term "equity of redemption" only becomes appropriate after the legal or contractual right has been forfeited. This distinction is, however, not important for the purpose of this chapter, and therefore it is convenient to follow here the usual practice of referring to the interest which the mortgagor has in the mortgaged lands as his equity of redemption.

The former transaction in common parlance is a second mortgage of the land, although in fact, if the first mortgage is a legal mortgage, the subject matters of the two mortgages are different. The second mortgage is a mortgage not of the land itself but merely of the right to redeem the first mortgage (b). The effect is to transfer to the second mortgagee the right to redeem the first mortgage and to create in favour of the second mortgagor a new right to redeem the second mortgage. So the mortgagor may by a third mortgage transfer his right to redeem the second mortgage and create in his own favour a new right to redeem the third mortgage, and this process may be continued indefinitely. The result always is that the mortgagor retains only the right to redeem the latest mortgage, he having transferred his right to redeem the earlier mortgages (c). At any given time the mortgagor's so-called equity of redemption consists of the right to redeem the latest mortgage, and he may either mortgage that equity or transfer it absolutely.