Home Equity

Real estate, as we all know is a booming sector. Unlike almost all the other sectors, which have received a beating in the light of the ongoing economic crisis; real estate on the other hand has been able to surf along, without facing much damage.

With the rapid development, which the real estate market has seen in the last few years, a number of technical jargons related to real estate have also evolved. An important name in this long list of technical jargons is Home equity. There are many definitions in regard to home equity.

Some definitions suggest home equity to be the total of all repayment amounts on the property, which has been paid by the borrower to the bank. However, a more justifiable definition is that home equity is the difference between the fair market value and the unpaid repayment amount. In case of liens and second mortgage, these amounts need to be deducted as well, to arrive at the actual figure of home equity.

We would further understand it with the help of an example.

Mr. Joseph Williams has been staying in New Jersey for the past fifteen years. Like most people, Mr. Williams too wanted to have a home of his own. He soon got an opportunity to fulfill this dream of his. He got in touch with Mr. Daniel Smith, who was a property agent. Mr. Daniel showed a number of houses to Mr. Williams, out of which he liked one prime property in Miami.

However, the property carried a price tag of two Million dollars. Now Mr. Williams could only pay for at the most, half the amount. At this point Mr. Daniel suggests him to go for a mortgage loan for his property. Mr. Williams readily agreed to it and is soon available with a bank loan for the same.

The monthly repayment amount was fixed and Mr. Williams was punctual in his payment. Five years later, Mr. Williams is in need of money and wants a loan. The lending institution suggests that he takes a loan on the basis of home equity on the property at Miami.

Mr. Daniel calculates the current value of the property to be close to four million dollars. Mr. Williams states, that he still has close to sixty thousand dollars to be paid on the mortgage of the property. With this piece of information, we arrive at the conclusion that the home equity of Mr. Williams on the Miami property is equal to four million less sixty thousand dollars, i.e. three million, nine hundred and forty thousand dollars.

Home equity comes very handy in times when you need quick loans. Also, they can be quite helpful in a number of other ways. As it is, home equity loans are easy to get, mainly because; they involve a lesser amount of risk.