Real Estate (Equity)

What is equity?

Image result for thinking

Well, let’s say you have a house

Related image

(Here’s a lovely representation of one)

Let’s say this house is valued at £100,000. You put a down payment on the house, which is at minimum of 5% so using this lovely house as an example you would have put down 5,000 (5%) and the bank (lender) will put up the other 95% (£95,000), which you’ll begin paying off (the mortgage).

So you’ve moved in and for a couple of years you’ve been paying your mortgage, and after those couple of years you now owe £75,000 from the original value of £100,000. There is now a gap of £25,000 of the money you owe and the value of the house with that £25,000 being your equity in that house. Equity in simple terms is the difference between what you owe, and what its worth, which is also equivalent to your net worth.Equity can also be found in houses in which you pay less than it’s actual value. For example, lets say you bought a house for £200,000, but it’s worth £300,000. Within that house you’ll have an equity of £100,000.

Equity can be used as a home equity line of credit (HELOC), which is a loan where the bank (lender) agrees to lend a maximum amount within an agreed period, but you can use what you like when you like in that period only getting charged interest for the amount you have used. With that line of credit you can take out a second mortgage in a home and continue building your empire in the real estate market.

I hope i explained this well as this is fairly new to me as well. It also important to know that the HELOC will use your equity in the home as collateral, so it’s important to look at the risks before delving into anything head on and plan things out. Hopefully this helped someone looking to buy a home or multiple homes and feel free to check out my other posts on my blog here: https://oukasnat.wordpress.com/

Thank you for reading and I hope you’re having a fantastic day!

Let us say this house is £100,000. You put a down payment on the house at a minimum of 5%. Using this lovely house as an example, you would have put down 5,000 (5%), and the bank (lender) will put up the other 95% (£95,000), which you will begin paying off (the mortgage).

So, you have moved in for a couple of years whilst paying your mortgage. After those couple of years, you now owe £75,000 from the original value of £100,000. Now with the difference of £25,000 between the money you owe and the house value. The £25,000 is now the equity you own in that house. 

Equity is the difference between what you owe and what your asset is worth, which is also equivalent to your net worth. Also, equity can be in houses where you pay less than their actual value. For example, you bought a house for £200,000, but it’s worth £300,000. Within that house, you’ll have equity of £100,000.

You can use equity as a home equity line of credit (HELOC), a loan where the bank (lender) agrees to lend a maximum amount within an agreed period. But you can use what you like when you like in that period, only getting charged interest for the amount you have used. With that line of credit, you can take out a second mortgage on a home and continue building your empire in the real estate market.

I hope I explained this well, as this is new to me too. It is also essential to know that the HELOC will use your equity in the home as collateral, so it’s imperative to look at the risks before delving into anything head-on and plan things out. Hopefully, this helped someone looking to buy a home or multiple homes. 

Feel free to check out my other posts on my blog here: https://oukasnat.wordpress.com/

Thank you for reading, and I hope you’re having a fantastic day!

Big Os

One Comment Add yours

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s