What is equity?
Equity is a crucial aspect of home loans. Equity is simply the value of a homeowner’s unencumbered interest on real estate. 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 his or her mortgage 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 his or her property. Equity exists in conjunction with your loan-to-value ratio (or LTV). Your LTV is a ratio expressing the value of your property to the amount of your loan. You determine your LTV by dividing your loan amount by your property’s value or selling/purchase price, whichever is lower. For example, you buy a $100,000 home with a $20,000 down payment of your own money, and cover the remaining $80,000 with a mortgage – 80,000 divided by 100,000 gives you a
Equity is simply the value of a homeowner’s unencumbered interest on real estate. Simply stated, the fair market value of the home, minus any outstanding liens or debts against the property, equals equity. A homeowner’s equity increases as the mortgage is paid off and as the property appreciates in value. When a mortgage and all other debts against the property are paid in full, the homeowner has 100% equity in his or her property. The amount of equity that you have in your home gives you the power to borrow money at the lowest possible interest rates, and the interest paid each year could be tax deductible. This is the greatest advantage of being a homeowner. Most lending institutions will only lend up to 80% of your home’s appraised value. Riverfront Mortgage has loan programs that could enable you to borrow up to 100% of the appraised value of your home to fund home improvements, college education, investments, a new vehicle, or whatever your need may be.
In order to understand how bankruptcy works, you must know the definition of “equity.” Equity is the value of property, less what is owed against it, and any costs of sale. As an example, if your residence had a value of $57,000.00, but was subject to a mortgage of $42,000.00, you would have equity of $15,000.00 in the residence. If you had a car with a value of $10,000.00 but owed $7,000.00 against it, you would have equity of $3,000.00. If there are any costs of sale, those costs would further reduce your equity in your residence, car, or other property.
