What it is:
Home equity equals the value of a house less the balance owed on the homeowner's mortgage.
How it works (Example):
Let's assume that John Doe pays $200,000 for a house. He principal payments over the next few years. At that point, John Doe's home equity is about $55,000 ($40,000 of down payment plus $25,000 of principal payments).20% down and makes another $25,000 in
The amount could be higher if John's house has appreciated. For example, if John has$55,000 into the house and the house has increased in value by $10,000, then John's home equity is really $65,000.
Why it Matters:
Home equity is an asset, and some people can borrow against that asset. These loans, called home equity loans, are very similar in concept to traditional mortgages. For example, home equity loans generally must be repaid over a fixed period. Some lenders may fixed rates on these loans, others might variable rates.
Home equity loans can be viable options when compared to unsecured loans. In addition, interest is tax-deductible, making the interest rates on home equity loans sometimes lower than they appear when one considers the tax savings.cards or other high-interest,
However, not all home equity loans are created equally. Borrowers are well served to compare fees, interest rates and terms among lenders. After all, when a borrower defaults, his or her home could very well end up belonging to the bank for good.