What is an example of equity in a home?

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asked Aug 8, 2024 in Real Estate - Renting by Prwater99 (940 points)
What is an example of equity in a home?

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answered Aug 9, 2024 by 12iroanges (41,370 points)
An example of equity in a home would be if you bought a $250,000.00 home with a $200,000.00 mortgage.

Then a couple of years later the home is appraised at $300,000.00 because of a good housing market.

And if you then paid the mortgage down to $150,000.00 then you would have $150,000.00 in equity in the home.

The equity in a home is the difference between what you owe on your mortgage and what your home is currently worth.

If you owe $150,000.00 on your mortgage loan and your home is worth $200,000.00, then you have $50,000.00 of equity in your home.

Your home's equity can be used for many things including home additions, debt consolidation, adoption expenses, or even an extravagant vacation.

For example, if your home is valued at $400,000.00 and you have $100,000.00 owed on your mortgage, you can work out the usable equity with this equation.

$400,000.00 x 0.8 =$320,000.00 Minus $100,000.00 in existing loans.

Therefore, your usable equity would be $220,000.00

While you pay back a home equity loan with fixed monthly installments, home equity agreements do not have payments at all.

Instead, you agree to pay the HEA company a certain percentage of your home's future value when you sell it.

Home equity loans tend to have a higher interest rate than home equity lines of credit, so you may pay more interest over the life of the loan.

Your Home Will Be Used As Collateral and failure to make on-time monthly payments will hurt your credit score.

A home equity loan allows you to tap into some of your home's equity for cash, which you receive in the form of a lump-sum payment that you pay back at a fixed interest rate over an agreed period of time.

This is typically from five to 30 years.

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