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What Is Home Equity?

In a nutshell, home equity is how much you have paid versus the value of your home. To compute for this, get the most updated market value of your home. Then, subtract the balance of our mortgage. Let’s say your house is worth $250,000 and you still have pending payments of $200,000. Your equity is $250,000 - $200,000 or $50,000.

This is the most basic formula for computing home equity. However, computations may become more complicated if you take a second mortgage on your property. This must also be considered to get a true picture of the home equity.

It is possible to use home equity to get another loan, called a “home equity loan” or a “home equity line of credit. This is classified as a secure loan because you are essentially offering your “stake” in your house as collateral. Usually you can borrow up to 75% of your home equity. You can use a home equity loan for almost any purpose, from paying for house renovations or repairs, or funding a business or a child’s education.

Many banks and financial institutions offer home equity loans, though it is important to review all your options (check different banks for deals), read the fine print (especially the fees), and just as crucially, consider why you are taking the loan in the first place. If you fall back on payments it is possible for you to lose your home, so taking this loan is quite a risk unless you have good reason to believe that you can afford it. Seek advice from a financial expert.

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