As the official definition states, “Home equity is the value of a home owner’s interest in their home.” In simple words, home equity is the original (current) value of your house at the current market rate. It is basically the difference between the mortgage and the current worth of your home.
The house equity can be calculated as follows –
Step 1 – Find the current value of or the estimated market value of your house
Step 2 – Check the last loan/mortgage statement and calculate how much loan is left to be repaid.
Step 3 – Equity = Current market value of the house – total outstanding payment towards loan or liens.
Buying a home is a long-term investment. The sum of money involved as you buy a house is significant. People often choose to or prefer to take a home loan when they decide to buy a house. However, one often gets confused in understanding the difference between a home loan and a home equity loan.
A home loan is a loan that one takes in order to buy a new home. On the contrary, a home equity loan is a loan taken by keeping the owned home as a mortgage.
House equity increases as you repay the home loan. It also increases if the overall value of your house increases.
Whenever we choose to buy a new home, calculating home equity becomes extremely important. This is because the house works as a convertible asset when there is a dire requirement of finance.
HomeCapital lists the ways in which you can use your house equity in the future.
Following are the advantages of using house equity:
As we know, buying a house involves a lot of investment. The house equity works as a return on that investment. It acts as an asset. Hence, when you are in the middle of the process of buying a house, it is advisable to check the house equity value.
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