What is equity

Equity

Equity

Equity is the financial interest or cash value of your home, minus the current loan balance(s). Also called the difference between the market value of a property and the claims held against it. Equity is simply the amount of ownership value a homeowner has in the property. Equity is computed by subtracting the total of the unpaid mortgage balance and any outstanding liens or other debts against the property from the property’s fair market value.

A homeowner’s equity increases as he or she pays off the principal balance of the mortgage and/or as the property appreciates in value. When a mortgage and all other debts against the property are paid in full, the homeowner has 100 percent equity in the property.

Home equity is the amount of money you have already paid against the value of your home. A simple formula for determining your home equity is to subtract the amount of the mortgage balance from the current fair market value of your home. In other words, your equity increases as your mortgage balance decreases. If your home has been appraised for $400,000.00 and you owe $225,000.00 on your mortgage, your equity is $175,000.00.

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