What exactly is “equity”?
Equity simply is the market value of property after deducting any debts. Debts include mortgage. Equity increases as property value increases and the mortgage principle is paid down. Here’s an example: You purchased your home in 2001 for $100,000 and financed it 100 percent. Today you sell your home for $200,000. Over the course eight years you’ve paid your mortgage on time and occasionally made extra payments. So now your mortgage pay-off is $50,000. You’ve built up $150,000 in equity. After the sale, the equity becomes your proceeds or profits. If you’re not ready to sell your home, this equity can be borrowed against either in the form of a home equity loan or equity line of credit. This money can be used to make necessary home improvements or much wanted renovations, both of which can increase the value of your home, which in turn continues to grow your equity. This is yet another reason why homeownership is a good idea.
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