Understanding Home Equity

I believed many of you especially home owners out there know what home equity means. If you are quite not familiar about it, you can find a lot of information online about this subject. Feel free to also browse Aviva for more help about this topic. More on that, they can also help you with some financial topics such as home equity loans, insurance, savings and investments and pensions and retirement.

Let me continue with my main topic. Here is a very concrete example of a home equity.  I believed I can share a  bit about this since I am also a commerce graduate majoring in accounting, and had worked  in one of the biggest financial institution back home in the Philippines. For example Mr. and Mrs. ABC bought a home  in 2001  for $500,000, payable in 20 years with a downpayment of  10%.   It means  at the moment, they already paid 12 years of  their mortgage. The amount of loan they availed last 2001  decreases because they have been paying it for 12 years now,  plus the downpayment they made for $50,000.  This also means that  the  property’s equity increases as the debtor, Mr. and Mrs. ABC make  payments against the mortgage balance, thus,  the property value appreciates.

According to  what I have learned  in economics during my college days, home equity is sometimes referred to as  real property value. With your home equity, you can actually  avail of  loans depending on the value of your property.

When I was in Las Vegas four years ago, my sister have been telling me that they want to avail of   home equity loan. They want to use the money in buying a new home. One friend also told me that they availed of a home equity loan to fully renovate their home. I guess that was not really a bad idea.   Besides, interest for home equity loans are lesser that the other form of loans. You can also use it for tax purposes.

Lastly, let me share to you this one. According to my friend wikipedia,  “home equity is the market value of a homeowner’s unencumbered interest in their real property—that is, the difference between the home’s fair market value and the outstanding balance of all liens on the property.”


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