What is Home Equity?

 Home equity is the difference in how much is still owed on a home’s mortgage and how much the home is worth on the real estate market. For instance, if the home is appraised at $100,000 and the owners still owe $75,000, then the home equity amount comes to $25,000. Home equity is considered to be an asset, which makes it part of the owner’s net worth. This means it is a valuable commodity which should be respected and protected against using it for frivolous things. It can be used to help pay for many different things.

Home equity is something that the home owners can use as an amount to possibly borrow against so that the money can be used to renovate or repair the home or even to help pay other expenses. Sometimes home equity is used in this fashion in the form of a line of credit or a second mortgage loan. Home equity loans are a good deal because the interest is deductible on the owner’s taxes the same way the primary mortgage loan interest can be deducted.

Home owners attain equity in two different ways. They earn home equity through their initial down payment and the amount of the principal payments they make on their mortgage. Plus, if the value of the home increases, so does the equity value. Unfortunately, the opposite is true too and if the home’s value decreases, then so does the amount of home equity in the home.

All in all, home equity is a very important factor in the price of a home. The value of it can vary depending on the circumstances of the home values in the area and the amount of money the owners owe on their mortgage or other liens against the property.